Cheap lending rates: personal finance expert Kelley Keehn offers her advice
Borrowing at today's low interest and mortgage rates can boost your return, and magnify your risk
With money so cheap, it seems like a good time to borrow. Maybe you want to renovate your home, buy a new car, or just take a vacation.
Kelley Keehn's key messages
Most Canadians are carrying too much debt as it is. Just because rates are low now, you still need to pay it back, and you still need to save for retirement.
By the numbers
- $1.63: the amount Canadians owe today for every dollar of disposable income they are bringing in.
- $0.66: the amount owed in the high-interest 1980s.
- 6 in 10: number of Canadians who are set to work past age 65, not because they want to, but because they have to.
Re-negotiating your mortgage
Keehn says probably rates have not moved so much in the last number of years that you want to break your mortgage and pay the associated penalty, but it depends what you've got.
To figure it out, check ratehub.ca, it posts all the different rates in Canada.
See if it's worth it. No matter how low rates are, we can always have the conversation of the forced savings of getting that mortgage paid down.
If nothing else, get on your bank's website, punch in your numbers on their calculator, ask, 'Hey, what would an extra $200 a month on my mortgage do, how many years would that take off, how much interest would that save?'
You would be surprised how much you can save, even in the so-called "free money" environment that we're in.
As always, you have to also decide, do you want to stay variable? Do you want to get in to a five-year fixed mortgage? A lot of banks now have a hybrid fixed/variable mortgage — it's the best of both worlds.
Is it a good time to invest in property?
If you're renting now, it can definitely be a good option to borrow to buy a home at these low rates, but you want to make sure your fundamentals are in place.
That means you've got that emergency account built, you are budgeting in the legal fees associated with a home purchase, potential increasing condo fees, things as a renter you don't have to face.
If you already own, you can look at buying a rental property, or fixing up your property as a rental income opportunity.
In some places, like Edmonton, there are sweeping changes making it easier to make income on legal basement suites and garage suites.
There's nothing wrong with using money to bring more money in, as long as you make sure you can handle the risk when you buy something above and beyond your principal residence.
Borrowing to invest
With borrowing to invest, you can magnify your return but also your risk. It can be a good idea, but look at your marginal tax bracket.
A low interest rate environment might not be the impetus to say, 'Hey, let's use borrowed money to invest,' because there isn't the huge tax break on the interest rate anyway.
And remember: whenever you're borrowing to invest, you really want to talk to a financial planner, a lawyer, your accountant. Don't skip any steps. Due diligence is the way to protect yourself from fraud and unexpected costs.