After updating its Financial Health Index for 2018, a firm called Seymour Consulting concluded that money-related stress is apparent.
In spite a low unemployment rate, total disposable income being ahead of inflation and Child Benefits, 32% of the participants didn’t have enough money to pay for basic needs and 52% had just enough to cover expenses. With rising mortgage interest rates people are concerned they will not be able to afford their mortgage at renewal time.
The survey found that money worries keep 45% of people up at night and 39% said it affected their wellbeing. The majority of Canadians are doing okay or better, but the stressed minority is getting increasingly larger.
Although some people are concerned about their mortgage payment increasing and contemplating trying to reduce it before it comes up for renewal, a mortgage is a good debt to have. The real burden are credit card debt and lines of credit. The mortgage rate generally beats the cost of any other borrowing.
Case in point: Financial Planner Noel D’Souza is working with a couple who are concerned about finances once their mortgage is up for renewal The mortgage is $600,000 with a rate in the low 3 -per-cent range and it won’t be up for renewal for another 3 years. They have a combined debt of $120,000 in credit cards at a rate of about 20% and a line of credit with a rate of about 5%. It makes sense to reduce the high interest debt and leave the mortgage alone for the moment. The next priority for the couple will be to obtain RRSP’s. Any tax refund generated should be applied to the credit card debt.
Mortgages are invested in a home which can be expected to rise in value. It’s money borrowed to buy an appreciating asset. Bad debt is money borrowed for consumption that offers no lasting value. By reducing or eliminating non-mortgage debts which reduces your monthly payments will offset the cost of an increased mortgage payment and ultimately financial anxiety.
Adapted from two articles by Rob Carrick and Globe and Mail
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