With some pride when we do the initial analysis client announces I only have $120,000 mortgage. With a house worth $450,000, the client is almost giddy with excitement that their mortgage is almost gone. But hey wait a minute, with credit pulled the client also owes $90,000 on a line of credit and it’s maxed. This line of credit is a 2nd mortgage against the property.
Oh and there is a $30,000 Visa, also maxed. Guess what? Under the terms of their bank collateral mortgage this is also now all secured. They thought it was unsecured because the bank (not surprisingly) never told them. Yep even the car loan for $35,000 with the same bank also now secured.
So you see the clients have actually not paid down a cent over the past five years because they actually increased the amount owed in both secured and unsecured debt. This is all an illusion made for Canadians to believe ‘they are paying their mortgage off faster’.
Now, of course, the mortgage was originally negotiated at a decent rate, so the homeowners are under the impression they are actually got an amazing deal. But on further examination, the mortgage is at 2.79%, the line of credit is at 3.2%, the Visa is at 18% and the car loan is at 12%. So that mortgage is actually costing around 6%. But worse yet all disposable income is gone with payments.
Now with all eggs in one bank basket, unsecured debt is now secured under the terms of the mortgage, so the visa is now technically part of the mortgage debt. The bank registered 125% of the property value as a mortgage against your home.
Remember it’s the bank’s goal to have you take 5 credit avenues; a mortgage, line of credit, 2 visas and a car loan in order to get you in just enough debt that you are just treading above water and most of your pay cheque is eaten by payments and interest. The bank extends just enough rope so you are dangling but not dead. Dying is not good but choking is okay. And now they have full control over you and your life. Remember they love professional and high income earners because there is more potential for profit. We see this happen time and time again to all income levels.
Time to get wise to the bank tactics that keep you in perpetual debt. If you have a mortgage for heaven sakes pay it down for good, but not at the expense of having higher interest debt. That’s completely counter productive. Don’t believe you have a $120,000 mortgage when actually owe $275,000 and it’s all with a major bank.
Get a ‘get out of jail’ free card from us. We have shown hundreds of clients how to get out of debt forever and actually pay off their mortgage. Even if you have screwed up before, you can still win the debt game with our helpful advice. Real freedom comes when you don’t owe the bank a cent.