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Mortgages

Using your mortgage for other expenses Add to ...

A mortgage is often the cheapest form of debt. So if you qualify for extra mortgage room, it may be tempting to roll other expenses into your mortgage. Maybe even consolidate other debt. The advantage is that you can get everything you want, at what might seem like a manageable monthly payment and low interest rate.

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What’s the catch?

Think about the long-term effects of deferring full payment for many years. You’re not actually getting rid of debt – just transferring it. Even though the monthly payment may be manageable, you will be paying for it a lot longer, and maybe even spending more on interest.

Example – Look at the impact of adding debt to a 5-year fixed mortgage amortized over 25 years at 5% interest:

​Amount
added
Total interest
paid on this amount
over 25 years
​Total repayment
for this amount
over 25 years
​$10,000​$7,448,15​$17,448.25
​$20,000​$14,896.30​$34,896.30
​$30,000​$22,344.45​$52,344.45

 

Consider the lifespan of the things you add

For example, if you add a $30,000 car purchase to your mortgage, it will end up costing you $52,344.45 over the next 25 years. And you’ll be paying for it long after you’re finished driving it.

Be disciplined if you are consolidating your debts – like student loans, credit cards, credit lines – into your mortgage payment. This strategy only works if you don’t pile up more debt.

Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca

 

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