My husband and I are pretty competitive, always trying to one-up each other.

It was to my chagrin, therefore, when I learned that although my credit score is excellent, his is better. I have never missed a bill payment, never carried a balance, so what could be holding me back?

According to author and former financial adviser Kelley Keehn, there are lots of innocent things that can affect your score. For example, most people don’t realize there are two important dates when it comes to paying off certain credit cards: the due date and the statement date. The statement date is when the card issuer reports your balance to the credit bureau, not the due date. So even if you pay your balance in full and on time each month, your credit score may not reflect that.

“Let’s say my due date is Dec. 8 and I have a $10,000 limit. I pay it in full before the 8th and won’t be subject to any interest,” Ms. Keehn says. “But, let’s assume my statement date is Nov. 15 – that’s a very important date as it’s the date the credit card company reports to the credit bureau, not the due date. Let’s assume I make a big purchase on the 14th, say for a reno at my home, not thinking anything of it, and pay for some hardwood costing $9,000. The next day the credit card company would report that I’m 90 per cent extended on my credit card.”

If you’re not sure of your credit rating, you can get a free report from Equifax.ca or Transunion.ca that will include your credit history and current credit outstanding. For a small fee, they will include your credit score as well. A good score is 760 or higher, and anything less needs work to improve it, Ms. Keehn says. (To order a free credit report from Transunion, click here. To order from Equifax, call 1-800-465-7166.)

She advises taking these steps to protect and improve your credit score:

1. Know your score. The score range in Canada is 300 to 900 – the higher the better – and reflects a person’s credit history over the past six years. Only 5 per cent of Canadians have a score of 850 or better. Checking your score periodically can alert you to mistakes as well as credit fraud.

2. Pay your bills on time. Making a credit card payment even one day late will hurt your score. If you’re paying online, send the payment at least three banking days before it’s due to allow enough time for the transaction to be processed. Setting up a small automatic payment to your card issuer each month will ensure you never forget to pay at least the minimum.

3. Never exceed your credit limit. If you’re close to being maxed out, make sure you pay more than the minimum or the interest due could push you over your limit. Going even $5 over your limit could lead to a costly fee from your credit card company and will hurt your score each month it happens.

4. Don’t apply for store credit cards. Even if you’re just after a one-time discount for signing up, these cards, with interest rates as high as 29 per cent, are viewed negatively by the credit bureau and drag down your score.

5. Spread out your spending. The percentage of available credit you’re using each month affects your score, so it’s better to have two charge cards at 50-per-cent capacity each than one that is maxed out.

6. Prioritize your payments. Important as they are, mortgage payments generally are not reported on Canadian credit reports, so it’s more important to make your credit card, loan and lease payments on time.

7. Beware of closing accounts. Even if you’re in a dispute with a lender, make your payments. A missed payment will show up on your credit report, can really hurt your score and is very hard to fix. When closing an account, get it in writing that it was closed with a zero balance.

8. Don’t close unused credit cards. If you have a low-interest card you don’t use, keep it open and use it periodically. Having a zero-balance credit card actually helps to improve a low score.

9. Don’t apply for too much credit at once. Don’t lease a car, sign up for a new cellphone and apply for a loan all in the same month or two. The credit bureau sees this as a sign of financial trouble. Beware, also, of being preapproved by several lenders before you’re ready to buy. Although you can check your own credit rating without penalty, preapprovals from lenders count against your score.

 Consumer confidence in Canada is on the upswing, but it may not be enough to benefit retailers for this Christmas shopping season.

The Conference Board of Canada’s latest survey of households shows overall confidence rose 3.9 points to 83.6, the second monthly uptick and sufficient to wipe out declines during the summer.

But on the question of whether now was a good time to make a large purchase — such as a home, car, or major appliance — almost half of respondents said no, and the balance of opinion on the question shifted negatively.

The finding is consistent with a new report by the Bank of Montreal, also released Wednesday, that nearly half of Canadians plan to cut back on holiday spending this year, and 48 per cent expect to spend less than they did two years ago.

The majority of respondents in the BMO survey estimated their holiday spending will peak at $1,300, with gift purchases outdoing entertaining family and friends in the size of outlays.

Only 20 per cent said they planned to spend more than two years ago.

“Despite low interest rates, the holiday shopping season this year will be a somewhat more subdued affair than last year, though sales growth should remain healthy,” said BMO economist Sal Guatieri.

Statistics Canada reported this week that retail sales rose 0.6 per cent in September, a relatively healthy gain after a slow summer.

In the latest consumer confidence survey, which was conducted in early November, Canadians said they were more hopeful about their future finances and job prospects.

After a series of declines, the share of respondents who said they expected future job opportunities to increase completely reversed, with the balance of opinion turning positive for the first time since July.

As well, the number of households who thought their finances would improve over the next six months rose to the highest level in six months, although at about 25 per cent the portion remains below what it was at the beginning of the year.

On a regional basis, opinions diverged.

British Columbia, Ontario and Atlantic Canada all registered increases in consumer confidence, while Quebec and the Prairie Provinces showed marginal decreases.

The survey was conducted between Nov. 4 and Nov. 14 and is said to have a margin of error of plus or minus 2.2 per cent.

You have to be a real clown not to have a financial plan and be saving for your retirement. Right?

Not really, you would just be among the approximately 80% of Canadians who don’t have any sort of comprehensive financial plan, according to the Financial Planning Standards Council.

Who are these people? They are people such as the 51-year-old rodeo clown I met this past week who goes by the name Shorty Leggs — and has no RRSP and isn’t too interested in starting one.

“I’m about to the retire,” he told me between his assignments at the Royal Agricultural Winter Fair, where his job is to entertain the crowd and also to distract the bulls if a rider is in danger.

In the past year he suffered major injuries in two separate incidents that resulted in a total of six cracked ribs. “I didn’t have any insurance so I kept on working. Insurance companies won’t even touch me.”

And he’ll keep working, just not as a clown. He plans to start training race horses. “I don’t think about it,” he says, referring to retirement.

The FPSC’s data will tell you’s he’s probably not as content and happy as he would be if he had a financial plan. I have to tell you I didn’t sense a trace of sadness in that clown about his financial choices.

I have a few friends, some of whom I might describe as clowns, who conduct their lives the same way. They haven’t contributed to an RRSP in years and they don’t bother with Registered Education Savings Plan for their kids. I’m not sure they’ve even heard of a tax-free savings account.

Are they really in that much trouble as they live for the moment?

According to a study done for FPSC, about 60% of people with no financial plan worry about their financial situation, compared with 44% who have a comprehensive plan. About 13% of those with no plan said they expected to retire to the lifestyle they want versus 44% for those with a plan.

“A big part of this is the focus on instant gratification. People’s concept of living for today has been skewed to meaning to not even give any consideration to the fact that at some point in their future they might not have a job and at some point there will be other demands on their pocketbook,” says Cary List, FPSC chief executive.

He thinks there is a fear factor to financial planning because most people think it means giving something up and they don’t want to do that. But who says you can’t have a selfish financial plan — I wouldn’t — that is designed to make sure you die with as little cash as possible and use as much of it as you can in your own lifetime?

“Financial planning is not just about retirement planning,” says Mr. List, adding it can be used for other life goals, including some short-term gratification. “Planning is not synonymous with saving and having X million dollars when you die.”

All that’s true but there is a certain percentage of the population that doesn’t bother to plan because they have no disposable cash to plan with, says Benjamin Tal, a senior economist with CIBC World Markets. “You can’t ask people making $20,000 to contribute to an RRSP,” says Mr. Tal. “The focus should be how many that make a reasonable amount money and still don’t contribute [to RRSPs and other investment vehicles]. That’s really a lack of planning.”

Moshe Milevsky, a finance professor at the Schulich School of Business at York University, says there might me some method to the madness of people who are not saving any money for retirement.

“There is 20% to 30% of the population whose standard of living will actually go up once they retire,” says Mr. Milevsky, adding Statistics Canada data supports the notion that if you are earning median wage or lower and you retire, the Canada Pension Plan and Old Age Security might provide a better standard of living than you had before.

Those people find themselves retired but without the expenses that involve going to work and the costs of a mortgage and kids. “Relative to what you experienced at 55, 65 is better,” Mr. Milevsky says.

But if you want more? You can always keeping working, as least as long as you’re able. It’s at that point when no financial plan might have the biggest impact on your life. “What do you want the last 18 months of your life to look like? Are you willing to live in a nursing home provided by the province or do you want something better,” Mr. Milevsky asks.

Is that something you want to clown around about or are these clowns having the last laugh because they live for today?
http://www.financialpost.com/news/many+clowns+with+financial+plan/3814594/story.html#ixzz15GeJeQ5L

Looking for your first home? Then do your homework before hitting the open houses.

“A first-time homebuyer can save a lot of time by knowing in advance how much they would qualify for and what they can afford,” says Marcia Moffat, RBC’s VP, Home Equity Financing, Canadian Banking.

RBC recently surveyed 1,050 Canadians, half who bought their first home in the past two years and half who intend to do so within the next two years. While two-thirds of future buyers said they hoped to purchase a single detached home, those who had already bought ended up in a townhouse or a condominium. The difference, suggests Ms. Moffat, comes down to dollars and sense.

“Affordability isn’t just the house price — it’s thinking about maintenance of the home, taxes, legal feels on top of it and, if it’s a young family, factoring in childcare costs,” she says. “Sometimes when someone is in the market of intending to buy, they haven’t thought through all those elements. Then, when they actually come down to buying, it’s part of the whole approval process. Yet if they get pre-approval, it strengthens their credibility with the realtor and means they’re not spending all of their time looking at homes that they can’t reasonably afford.”

Apparently, getting advice is all in the family. While one-third of current homeowners turned to the bank as their primary source of mortgage advice, those planning to buy turn to Mom, Dad and other family members to better understand mortgages. That’s not always smart, says Ms. Moffat, since what was right for your parents when you were a kid might not be right for you now.

“I’ve heard parents say, ‘You should go into a 10-year fixed,’ but those were parents who lived through the late ’80s at a time of very high interest rates and uncertainty,” she says.

Of course, managing cash flow becomes a much more pressing concern once the sale is final. According to the survey, those planning to buy fret most about three things: being approved for a mortgage, affording the downpayment, and rising housing prices. Once in the market, though, they get cash-flow anxiety, worrying considerably about rising mortgage rates, being able to make their regular monthly mortgage payments, and declining housing prices. With all that stress, it’s not surprising that 85% of first-time buyers said they intend to stay in their new home for the long-term.

As for mortgages, the study reveals that first-time homeowners are more likely to opt for fixed or variable rate mortgages — though older first-timers are more comfortable with variable rates than their younger counterparts. Future buyers go for a combination of the two, which RBC concludes may reflect their uncertainty.

Ms. Moffat says there are many simple ways for first-time homebuyers and those planning to buy to make the experience more soothing. For those unsure if they’re ready to buy, mortgage specialists can offer budgeting advice while online mortgage calculators can compare monthly rental payments to mortgage payments.

Ms. Moffat also suggests setting mortgage payments for the highest amount possible.

“If you are concerned about rising rates, a good rule of thumb is to plan for the worst case scenario for the next five years and build your financial plan around that number,” she says. “If things turn out better, you’ll be ahead of the game because you’ve already paid down a good chunk of your principal and you’ve tested your budget for higher payments.”

Read more: http://www.nationalpost.com/Father+doesn+know+best/3859726/story.html#ixzz160voQa87

·  OTTAWA — The country’s top financial policymakers warned Canadians on Sunday to brace for tough decisions and “very big challenges” ahead as Canada tries to secure its recovery in an ever-changing global economic landscape.

Finance Minister Jim Flaherty — set to deliver a key speech on federal economic policy in Oakville, Ont., on Monday — said the Conservative government is determined to cap program spending so Canada can return to a balanced budget position and avoid the turmoil Europe is undergoing.

He acknowledges this won’t be a popular decision, with certain segments of the population and his political opponents.

“We have to make sure we protect the country going forward,” he said in a TV interview. “Look at what’s happening elsewhere … like the issues they are dealing with over the weekend in Ireland. We don’t want to get into any fiscal trouble in Canada.

“We still have to watch what’s happening in the world, and be careful that we preserve this modest recovery,” the Finance Minister added. “And that means we cannot act in any sort of extreme or dramatic way.”

The government has forecast returning to a balanced budget by 2016, through reducing spending growth in key areas and allowing the two-year, $48-billlion stimulus plan to expire as planned at the end of this fiscal year.

His speech in Oakville is expected to draw clear boundaries for his political opponents about what the minority government will and won’t undertake in the next federal budget, to be tabled early next year.

Meanwhile, Bank of Canada governor Mark Carney warned there are “some very big challenges” ahead for the global economy set to play out over the next several years.

“There are stresses in the global system without question, and they are going to take years to play out and policy decisions are going to continue to matter,” Mr. Carney said in a radio interview. “There are ways to get this right, and ways to get this wrong.”

The global economy has reached a rather precarious spot, as the recovery slows, Europe’s debt woes re-emerge, and inflation threatens the growth-engine in the increasingly vital emerging economies. In addition, there are heightened tensions among struggling advanced economies and faster-growing emerging markets over foreign-exchange policy, prompting countries to intervene in order to cap the appreciation in their currencies.

Group of 20 members met this month in Seoul but failed to come to an agreement on dealing with the currencies issue. “We didn’t make as much progress quite frankly as we had hoped,” Mr. Flaherty said.

Mr. Carney also stressed the need for global policymakers to instill additional market discipline on banks by removing so-called “moral hazard” from the system, in which the private sector relies on governments to save lenders that get in trouble due to excess risk taking.

“We have to get rid of that,” the central bank governor said.

He also debunked reports that Royal Bank of Canada was on a list of banks deemed by global banking authorities to be too big to fail. Mr. Carney said Canada’s biggest bank was “not on that list,” as compiled by the Financial Stability Board.
Read more: http://www.financialpost.com/news/Tough+decisions+ahead+avoid+fiscal+trouble+Flaherty/3862689/story.html#ixzz160uGkC1P

OTTAWA — Canadians could be enjoying historically low interest rates on loans for cars and homes for quite a long time, economists believe.

Since June, the Bank of Canada has been attempting to “normalize” interest rates, hiking its policy rate by one point.

But recent developments in the global economy — and to a lesser extent in Canada — have not to been positive, nor supportive of monetary tightening, regardless of what central bankers want.

The slowing global recovery and the re-emergence of the European debt crisis has caused the TD Bank to revise its outlook on when Bank of Canada governor Mark Carney can safely resume pushing the policy rate, now at one per cent, back to the three to 3.5 per cent range analysts believe is ideal for a balanced economy.

In a note released Friday, TD says Carney is unlikely to start hiking rates until at least next July, when U.S. Federal Reserve chair Ben Bernanke is scheduled to stop pumping billions of dollars into the economy under his controversial quantitative easing initiative.

That is good news for Canadians, both consumers and corporations, looking to borrow cheaply.

But, overall, super-low interest rates are reminders the economy is on life-support and that central bankers are more concerned about sending the economy crashing in the near term than worrying about setting up conditions for a reckoning later on.

Carl Weinberg of U.S.-based High Frequency Economics notes that Bernanke’s much criticized $600 billion US injection and zero interest policy has done nothing to stoke inflation, which this week came in at 0.6 per cent in the United States.

Nor are price pressures building despite stimulative policies in Canada, where core inflation remains a tame 1.5 per cent, or in other advanced economies such as Japan and Germany.

“With employment slack everywhere, and with abundant excess capacity everywhere, the G7 economies are all experiencing historic or near-historic lows in core price increases,” Weinberg notes. “This tells us that the G7 economies all remain depressed, and there is plenty of scope for monetary stimulus.”

The Organization for Economic Co-operation and Development also this week urged Carney to hold tight until at least the spring.

Being the first in the G7 to tighten, it’s unlikely Carney will go so far as reverse course on rates, failing signs of a second downturn.

But TD chief economist Craig Alexander thinks Carney’s fear that Canadians may be induced to take on debt beyond their means is not as great as the fear that raising rates could slow consumption, raise the dollar and crash the economy.

“I think the Bank of Canada would like to have higher rates from a domestic point of view,” he said. “But there is so much slack out there. It does not suggest double-dip recession, but people have to come to terms with the fact that growth of 1.5 to two per cent is now normal and the labour market is not going to recover quickly.”

The often missed fact about two per cent growth, adds Alexander, is not that it is modest, but that it barely keeps up with the trend rate of the economy. That means it will likely take another two years just to return to full capacity.

Evidence of just how profoundly Canada’s economy has slowed since the quick reboot that began a year ago is mounting.

This week, Canadians learned factory shipments shrank 1.4 per cent in volume terms in September — an important indicator because with consumer spending receding, the economy needs a boost from exports to make up the difference.

The most visible sign of braking is in Canada’s much-ballyhooed employment record. While still better than the U.S., job growth has virtually ground to a halt since June, gaining about 5,000 a month when about 15,000 is needed just to keep up with Canada’s population growth.

As little as the Bank of Canada is counting on exports to bolster growth, it may be overbanking on its expectations, says Sal Guatieri of BMO Capital Markets. Europe’s woes, along with those in the U.S., and China’s tighter monetary policy, all point to global markets drying up further.

Not everything argues against a rate hike, says Guatieri, but most things do.

The Canadian Press http://news.therecord.com/article/816401

Low interest rates and a hot housing market helped push Canada’s total residential mortgage debt to a record $1 trillion this year, but a cooling real-estate market is expected to slow further accumulation, says the chief economist of Canada’s mortgage industry association.

The value of outstanding mortgages is now 7.6 per cent higher than it was last year, the Canadian Association of Accredited Mortgage Professionals said in its annual report released Monday.

“We’re still seeing a lot of movement into home ownership and that’s what’s driving the growth of debt,” said Will Dunning, CAAMP’s chief economist.

“The growth will gradually decelerate but we’re still looking at rates of six and a half per cent or so, so still fairly rapid,” Dunning said.

This year’s growth was higher than the average annual increase is around 7.1 per cent. However, it is still much lower than it was in the early 2000s, when debt growth hovered closer to 10 per cent year over year.

Higher home prices drove many Canadians to borrow heavily to finance-purchases, while a low interest rate environment encouraged others to refinance loans and consolidate debt, the CAAMP report said.

The low interest rate environment has enabled some consumers to take on bigger mortgages than they might otherwise have been able to carry, while it has encouraged others to borrow against their homes.

Recent housing market data points to a massive downshift in housing market activity.

Less activity in Canada’s resale home market and moderating housing starts will mean fewer people taking on new mortgages, Dunning said.

“That (slowdown) now and in the near future going to result in less mortgage takeout as those sales get closed,” he said.

Canada’s housing market has been on a tear for much of the past year after the Bank of Canada sent its trend-setting policy rate to an emergency low of 0.25 per cent to stimulate borrowing and consumer spending.

Buyers, spurred by easy access to relatively cheap borrowing, rushed into the market and competed aggressively for homes, which drove prices to record highs.

The market has been cooling in recent months as many sales were pushed ahead to the beginning of the year in advance of tighter mortgage qualification rules, a new tax regime in B.C. and Ontario and higher interest rates.

Meanwhile, the Bank of Canada’s policy rate has been hiked three times to one per cent, still historically low. The central bank is expected to take a pause on rate hikes until the middle of next year, giving mortgage holders more time to refinance at low rates.

Most Canadians have heeded warnings from economists — including the Bank of Canada — about growing debt levels and took advantage of low interest rates to refinance and pay off other debts, CAAMP said.

The report found 18 per cent of mortgage holders have taken equity out of their homes to free up extra cash. Almost half of mortgage holders who borrowed against their homes cited a need for “debt consolidation or repayment” and the average amount borrowed against home equity was $46,000.

The association said that most mortgage holders appear to be comfortable with their debt levels and that the vast majority — about 84 per cent — said they could afford at least a $300 or 30 per cent increase in their monthly mortgage payment, Dunning said.

The association asked approximately 2,000 Canadians surveyed how much of an interest rate hike they could withstand. The average Canadian monthly mortgage payment is about $1,025 and the average homeowner has room for $1,056 per month on top of current costs, the report found.

However, about 350,000 out of 5.65 million, or about six per cent of Canadian mortgage holders, would be challenged by rate rises of less than one per cent, CAAMP said.

“Most of the people who have low tolerances for increased payments have fixed-rate mortgages,” the reports said. (So) by the time their mortgages are due for renewal, their financial capacity will have expanded and their mortgage principal will have been reduced.”

Canadians continue to favour fixed-rate mortgages and a five-year fixed-rate mortgage remains the most popular option despite the fact that variable rates have become much less expensive than fixed rates, the report found.

Canadian Association of Accredited Mortgage Professionals releases
Annual State of the Residential Mortgage Market in Canada report

Canadian homeowners are comfortable with their mortgage debt, have significant home equity and could withstand an increase in their mortgage interest rate, according to the sixth Annual State of the Residential Mortgage Market report from the Canadian Association of Accredited Mortgage Professionals (CAAMP), released today.

Highlights:

• The vast majority of Canadians with mortgages are able to afford at least a $300 increase in their monthly mortgage payments.
• One in three (35 per cent) mortgage holders have either increased their payments or made a lump sum payment on their mortgage in the last year.
• 89 per cent of Canadian homeowners have at least 10 per cent equity in their homes and 80 per cent have more than 20 per cent equity.
• Overall home equity is at 72 per cent of the total value of housing in Canada; for homeowners who have mortgages, equity level averages 50 per cent.
• As of August 2010, there was $1.01 trillion in outstanding residential mortgage credit in Canada, an increase of 7.6 per cent from last year.

“Canadians are being smart and responsible with their mortgages,” said Jim Murphy, AMP, President and CEO of CAAMP. “They are building equity in their homes and making informed, long-term mortgage decisions. The survey results speak to the strength of our mortgage market, especially when compared to the United States.”

Homeownership is a good long-term investment
Most Canadians agree that buying a home is a good long-term investment and are focused on their mortgages to support that investment.

Many mortgage holders are making voluntary additional payments: 16 per cent have increased monthly payments during the past year, 12 per cent have made lump sum payments, and 7 per cent did both.

Canadians are exercising caution when taking out their mortgages, with a majority choosing a fixed-rate (66 per cent). A five-year fixed-rate mortgage remains the most popular option in Canada. Despite the fact that variable rate mortgages have become much less expensive compared to fixed rates, the majority choice is still fixed rates: this decision is based on people’s individual assessments of risk, not just the cost difference.

Potential rate increases won’t be a problem
The CAAMP study found that a vast majority of Canadians have significant capabilities to afford higher payments if and when mortgage interest rates rise. 84 per cent report that they could weather an increase of $300 or more on their monthly payments.

Most of the people who have low tolerances for increased payments have fixed rate mortgages, by the time their mortgages are due for renewal, their financial capacity will have expanded and their mortgage principal will have been reduced.

Also, Canadians have been able to negotiate better than posted mortgage interest rates. For five year fixed rate mortgages arranged in the past year, the average rate is 4.23%, which is 1.42 points lower than typical, advertised rates.

Of the 1.4 million Canadians who renewed their mortgage in the past year, 72 per cent were able to renegotiate a decreased rate: on average, rates are 1.09 percentage points less than the rates prior to renegotiating.

Canadians have significant equity in their homes, strengthening the housing market
Canadians’ home equity is impressively high. Among homeowners who have mortgages, the average amount of equity is about $146,000, or 50 per cent of the average value of their homes.

The amount of equity take-out in the past year is unchanged from last year with around one in five homeowners, or 18 per cent, taking equity out of their home, at an average of $46,000. The most common purpose for equity take-out is debt consolidation and repayment (45 per cent) followed by home renovations (43 per cent), purchases and education (19 per cent) and then investments (16 per cent).

The report is authored by CAAMP Chief Economist Will Dunning and based on information gathered by Maritz Research Canada in a survey of Canadian consumers conducted in October 2010.

The CAAMP survey report contains a wealth of industry information, including consumer choices and borrowing behavior, opinions on current “hot topics” related to housing and mortgages, regional breakdowns of responses, and an outlook on residential mortgage lending.

For a copy of the report, please visit www.caamp.org, ‘Mortgage Industry’, under ‘Resources’.

Recently a close friend showed me how she was going to consolidate their high-interest debt into their mortgage to reduce their overall interest rate and free up hundreds of dollars in cash flow every month. Debt consolidations are nothing new, but they only work if the person is not simply looking for a quick fix.

In this particular case, $410 was freed up in monthly cash flow and the refinanced mortgage interest rate was lower. In many situations, however, consolidating debt into a mortgage comes at a cost: You must break your current mortgage and the high-interest debt then gets amortized into the new mortgage balance at a lower interest rate. Your overall debt goes up by a few thousand dollars (the cost to break the term and perhaps paying a CMHC premium on the increased balance on the mortgage), the rate of interest you pay overall goes down, but those high-interest debts are now being paid off over much longer periods of time.

So what’s better? Paying high interest for a few years or paying lower interest for a few decades? Well, you have to do the math, and then you have to figure out if you are just giving yourself more rope with which to hang yourself.

Before

$245,000 mortgage @ 5.25% amortized over 20 years, monthly payments of $1,650

$15,000 other debt @ 18.99% which would be paid off within 3.5 years with $500 monthly payments

Total Monthly Payments: $2,150

Total Principal Paid: $260,000

Total Interest Paid: $155,000

Total Principal and Interest: $415,000

After

$270,000 mortgage @ 4.75% amortized over 20 years, monthly payments of $1,740

Total Monthly Payments: $1,740

Total Principal Paid: $270,000*

Total Interest Paid: $145,000

Total Principal and Interest: $415,000

* Extra $10,000 covers fees and penalties to break current mortgage plus new CMHC premiums

Monthly cash flow saved: $410

So in this case, the math works, especially if the monthly cash flow savings of $410 is put to productive use, like contributing to an RRSP or building an emergency reserve. There are many variables at play here: interest rates, amortization, fees and penalties for your specific situation. You may find the overall cost of borrowing to be higher or lower than your current situation. Always run through the math.

But the more important consideration is whether or not you will get back into the habit of spending more than you earn. If that does happen, then what do you do the next time you’ve racked up too much debt? Refinance again? The vicious debt spiral can only be stopped once you master your monthly budget. If you can run a surplus for six months without problems, then by all means take a look at refinancing. But if you can’t run that surplus, don’t kid yourself: The same short-term thinking that caused you to run a deficit will cause you to tighten that noose around your neck.