Archive for Debt Pay Off

Car Loan & Mortgage PAID OFF! YAHHHH!

I am so excited I can scream! Both my car loan and mortgage are finally paid off. I paid off my car loan before my mortgage, but I didn’t want to celebrate until getting rid of my mortgage. I made the final payment on December 21, 2011. Whoo hoo! I have been waiting for this moment since August 2000, the month and year I purchased my home. It took 11 years and four months to pay it off the full mortgage and I can tell you that the wait was so worth it. Paying off my mortgage was my Christmas present to myself, the best Christmas present ever. Well I got an iPad which I absolutely love but that’s just going to have to stay in second place. I didn’t seriously start to track the pay off of my car loan and mortgage until 2009. Click here for the details.

Now that I have no mortgage it’s going to feel a little weird not to have to give the bank money every two weeks. I have decided that I am going to save what use to be my mortgage payment, since I have been living just fine without that money anyways.

Saving my old mortgage payment won’t really be a New Years resolution since I made that decision last year. I actually don’t make New Years resolutions any more. Why wait until the beginning of a new year to try something new, or make a goal, or start fresh. Just do it when you want to change, and that could be any time through out the year. Besides I think New Years resolutions are over-rated. Gyms use this as a marketing tool to generate more business because many people want to loose weight for the New Year. Don’t get caught up in the hype surrounding resolutions. Do your homework if you plan to join a gym and NEVER give a gym access to your bank account. Check out community centers, their prices are often cheaper than larger gyms. Most condos have gyms as well, if you live in one or have a friend that does, take advantage of those gyms.

So what are some of the things that you want to accomplish?

Debt Pay Off Part 1 – Car & Mortgage Pay Off

This is part 1 of a series of how I paid off $95,778.5 in less than 3 years.

In this series I will talk about what I did to get rid of my car loan ($15,087.21) and mortgage debt ($80,691.29), as well as some things that I learned through out the whole process of buying my home and paying it off.

The first thing I did was made the decision that I was going to get rid of this debt. Looking at $95,000 worth of debt can make anyone doubt they can pay it off. Without making that decision, I had no chance. There were several people that told me that it was impossible to pay off a mortgage. So I just stopped talking to those people about paying off my debt. I still haven’t told them I paid it off! Why bother!

In 2009 I discovered Dave Ramsey while I was browsing through the radio. I couldn’t believe what I was hearing. People were calling in to tell Dave they paid off hundreds of thousands of dollars in debt. I immediately got hooked and started listening daily! I still listen daily because Dave gives great tips on saving, budgeting and starting a business. Plus it keeps me motivated!

I remember hearing Dave say if you can’t pay off your car loan in 18 months sell it. At the time I had around 18 months left if I made additional payments, so I felt good because I didn’t want to get rid of my car. Dave Ramsey often talks about his baby steps. Baby step 1 is having $1000 in a starter emergency fund, baby step 2 is to get rid of your debt except your mortgage. In February of 2009, I had around $7500 sitting around, so I took $6500 and put it on my then car loan balance of $15,000 and I left $1000 for my starter emergency fund.

After putting $6500 on my car loan, I became seriously intense about paying it off. I made as many additional payments as I could.

  • I cut my spending big time by tracking every dollar I spent
  • I stopped eating out
  • Cut back on buying clothes
  • Any bonuses I got at work went towards my car loan
  • I used my tax refund to pay it down

Once my car loan was paid off I began to attack my mortgage. Check out Part 2 here

Debt Pay Off Part 2 – The Mortgage

This is part 2 of a series of how I paid off $95,778.5 in less than 3 years.

I was 20 years old when I bought my first property. It was a joint venture with my mother. Prior to purchasing our first home we were renting, so this was quite an adventure for the both of us. I wouldn’t recommend buying a property with someone else unless you REALLY trust them and like them. Of course if you are going to live with someone, it should be someone you get a long with and you know quite well.

Since this was my first purchase, I knew very little about purchasing a home. I worked at the Bank of Montreal at the time, so I decided to do some research before making this big leap. The big question I had was, what exactly was a mortgage and how did it work. Yes you read right, I worked in a bank and didn’t fully understand what a mortgage was and how it worked. I knew it was a loan, but that was it. So please do research before you decide to get a mortgage.

Research is very important when selecting a mortgage. Before you get a mortgage, ask as many questions as you need answers to. Ask, ask, and ask. You can never ask too many questions, plus there’s no point in going into that much debt without being completely at ease that you understand what you’re getting in to. Your banker should be able to answer all of your questions. If they don’t know the answer, try someone else.

Mortgages can be very complicated and it’s easy to get in over your head if you don’t fully understand how they work. Webster’s definition of a mortgage is a conveyance of or a lien against property (as for securing a loan) that becomes void upon payment or performance according to stipulated terms. In other words the bank technically owns your home until you pay off your mortgage.

Types of Mortgages

Conventional Mortgages

If you have 20% or more of the purchase price (or appraised value if this is less than the purchase price) as a down payment, you can apply for a conventional mortgage.

High Ratio

If you have less than 20% of the purchase price (or appraised value if this is less than the purchase price) as a down payment you will require mortgage loan insurance. There are three mortgage loan insurance companies in Canada. Canada Mortgage & Housing Corporation(CMHC), Genworth, and Canada Guaranty. Purchasing insurance is a very common way to qualify for a high ratio mortgage. The insurance premium is charged once per mortgage and is payable at the time of advance. You may pay this upfront yourself or you can just add it to your mortgage, which is what most people do.

Home Owner Line of Credit(HOLC) or Home Equity Line of Credit (HELOC)

This is a little bit different from a mortgage, but it falls under the same category. This is usually offered if you have outstanding credit and have 20% or more as a down payment. A HOLC allows you to borrow from the value of your home up to an approved credit limit. This is revolving and a mortgage is not.

Click here for part 3

Debt Pay Off Part 3 – Interest Rates, Terms, and Amortizations

This is part 3 of a series of how I paid off $95,778.5 in less than 3 years.

When it comes to interest rates and terms it’s important to know that you can negotiate interest rates. When you see a rate on a banks website, that is called their posted rate. This rate is often set high, so they have room to negotiate. Shop around with different banks, credit unions and other companies that offer mortgages to see what’s best for you. Never get pressured into buying a home or obtaining a mortgage. This is one of the largest purchases you will ever make, so take your time and do your homework.

After you’ve determined whether you will qualify for a conventional mortgage, a high ratio, or a HOLC/HELOC, you will need to decide what term is best for you. When I purchased my first home, I put 5% down,(high ratio mortgage) amortized my mortgage over 25 years and took a 5 year fixed rate term.

Mortgage Term

A mortgage term is the length of time your mortgage contract is in effect. It is also how long you are guaranteed a particular interest rate. At the end of your mortgage term you can renegotiate your interest rate.

Amortization

This is the life of the mortgage. Amortizations are usually 25 years or 30 years, meaning this is the amount of time it will take to pay off the mortgage.

Open Mortgages

An open mortgage can be paid off anytime without a penalty. Most times you can also make additional payments on your mortgage throughout the term without a penalty. Open mortgages usually have higher rates than closed mortgages. The rates are higher because there are more flexibilities when it comes to paying off your mortgage early, or leaving one bank for another.

Closed Mortgages

Closed mortgages have lower interests rates than open mortgages, but are not as flexible. You cannot pay off your mortgage early without incurring a penalty with a closed mortgage. You can however, take advantage of any pre-payment options your bank offers in a closed mortgage.

Convertible Mortgages

This mortgage is similar to the closed mortgage with the added benefit of changing terms without paying a penalty. (This mortgage varies among banks)

Click here for part 4

Debt Pay Off Part 4 – Affordability

This is part 4 of a series of how I paid off $95,778.5 in less than 3 years.

Trying to determine how much we could afford was quite hard for me. When we were renting we lived in a town house, it wasn’t big by any means, but it had enough room. So when we started our home search, we started looking at houses. I was so excited that I would have much more space then we did in our town house. To my surprise, we soon realized that a house was over our budget for where we wanted to live, so we began our search for a condo. We looked at many condos before we made our decision. I did a lot of praying to double check that I was making the right decision. When we walked into the condo that we ended up purchasing, it just felt right, it felt like home. So we took that leap and purchased.

There are many calculators available online where you can key in your numbers to determine how much of a mortgage you can afford. You can check out the “How much can I afford calculator” on BMO’s website. I would also recommend doing a pre-approval with your local bank to determine exactly how much you qualify for. The calculator will give you a rough estimate, where as a pre-approval with a bank will help you determine exactly how much you qualify for, based on your credit, income, assets, and liabilities. If your down payment is less than 20%, you will require further approval from one of the mortgage loan insurance companies in Canada. CMHC, Genworth, or Canada Guaranty. These mortgage insurance companies protect mortgage lenders against defaults. Keep in mind that their qualification criteria may be different from your banks. Your mortgage lender can advise you on their qualifications.

Click here for part 5

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