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Should I Save for a Down Payment or Pay Off My Debt?

Author: Cody Rowe - Mortgage Broker |

 Blog by Cody Rowe - Mortgage Broker

I often get questions about whether someone should work on paying off their debt or save for a down payment instead.

The answer as you might imagine is nuanced and based on each person’s individual circumstances.

Generally, the sooner you can enter the real estate market, the sooner you can begin benefiting from your investment appreciating in value.

At the same time, too much debt going into your home purchase can either limit your options or make it too unaffordable to manage.

Today we will discuss the steps you can take and strategies you can use to help you determine the right plan of action for your unique situation.

Step #1 – Summarize and List Your Debts

First, lets introduce a simple practice that can really help simplify which debts you should focus on. Take a look at your total debt balances and list each debt in order by interest rate highest to lowest. It may look something like this:

Visa – 19.99% - $9,000
Mastercard – 14.99% - $5,000
Line of Credit – 9.99% - $13,000
Car Loan – 5.99% - $25,000

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By summarizing your debts, you can identify which ones need to be paid first as well as any opportunities to lower the interest.

The goal should be to address amounts that have the highest interest rate regardless of balance, as these will be the hardest to clear and the ones eating away the most at your savings reducing your return-on-investment for any savings you have put away.

For example, using the above sample we can quickly identify that the Visa credit card is the one we should pay the most attention to with the Mastercard coming in second.

Side Tip: Make sure to set-up automatic minimum payments on all your credit cards and lines of credit, to avoid further set backs in your credit score.

Step #2 – Look at Getting a Consolidation Loan to Lower Your Interest.

Next, I would look for opportunities where you can restructure the balances into one single consolidation loan with one payment and a lower interest rate.

For example, you could look at consolidating both the Visa and Mastercard into a loan that will give you an interest rate of 7.99% with a structured payment plan so you know you’re not just making interest payments. Having a structured payment plan will free up cash flow to pay down other debts or at least prepare you for the next step…

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Step #3 – Speak to a Mortgage Broker

Once you’ve done what you can in the short term to lower your interest and monthly payments, next I suggest setting up a meeting with an independent Dominion Lending Centres agent to help you assess and determine the best strategy for handling these debts in relation to your home purchase.

An independent Dominion Lending agent can help you determine how much your debt payments are affecting your ability to purchase a home and provide a roadmap to help it happen faster.

We can also educate you on unique mortgage cash-back programs available to you, that can provide additional funds during the home buying process to help clear off unwanted debts before you begin paying a mortgage so you can move into your new home with confidence.

Written by

Cody A. Rowe

Dominion Lending Centres

Modern Mortgage Group

Schedule a chat with me today.

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