It happens all too often. A homeowner is looking over their monthly bills and find that they’re coming up short in order to pay them all. Forget about RRSPs and retirement planning; today, it can be hard just to cover the costs of day-to-day living, especially with the average Canadian’s debt-to-income ratio exceeding 151%. So when it comes time to cut from one bill in order to pay another, which one do you choose? The answer to that rests with you, where your bills currently stand, and which one you think you can afford to delay for a bit longer. But one bill that you should always, always pay on time is your mortgage, and there are plenty of reasons for it.
The first, and most obvious, reason to always pay your mortgage first is because this loan uses your home as collateral; and if you don’t pay it, you could lose yours and your family’s shelter. It’s a risk you simply can’t afford to take, and lenders aren’t likely to be too forgiving for very long. This is always, always the first reason why you should never allow one of those late payments to appear on your mortgage.
However there’s a much less scarier, and even much more optimistic reason to always pay your mortgage on time and that’s because it’s a great source of equity. That equity could be borrowed against using a home equity loan or home equity line of credit, allowing you to catch up on all those other bills. Benoit Poliquin, lead portfolio manager at ExPonent Investment Management Inc. says, “Pay for the home first. Look what the homeowner gets. There is the return on equity. That is what the home gains in owner equity every month as the debt declines. The more you pay and the sooner you pay, the faster you gain equity through the mortgage.”
The choice really is simple. When looking at your bills, common sense tells you that you need to pay your mortgage first in order to keep you and your family protected. But good financial sense will tell you that this is also the answer to all those other unpaid bills that you’re sorting through – and it’s just the one you’ve been looking for all along.
