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Tag: Calculators & Tools

  • Credit card interest calculator – MoneySense

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    Play around with our credit card interest calculator to calculate credit card interest and figure out how long it will take you to repay the debt. This tool can help you develop a plan to address your balance and avoid paying interest going forward.

    How to use the credit card interest calculator

    Our credit card interest calculator can help you figure out two key pieces of information: 

    • How much money you’ll pay in interest based on your current monthly payment
    • How many months it will take to pay off your credit card balance

    Start by inputting your credit card balance and your card’s annual percentage rate (APR). If you don’t know this number, log into your credit card account and pull up your card’s terms and conditions. 

    Next, decide if you want to see how much total interest you’ll pay based on your current monthly payment (and enter that amount) or specify your payoff goal in months to see how the total interest charges.

    How to calculate credit card interest

    Since interest is expressed as an annual percentage rate, card issuers take several steps to determine how much to charge each month. Here’s how you can figure out their method:

    1. Convert your APR to a daily rate. Most issuers charge interest daily, so divide the APR by 365 to find the daily periodic interest rate. Make sure you’re using the purchase interest rate (not the cash advance or balance transfer rate).
    2. Figure out your average daily balance. Check your credit card statement to see how many days are in the billing period. Then, add up each day’s daily balance, including the balance that carried over from the previous month. Once you have all the daily balances, divide the figure by the number of days in the billing period to find your average daily balance.
    3. Multiply the balance by the daily rate, then multiply the result by the number of days in the cycle. Now that you have all the details you need, multiply the average daily balance by your daily periodic interest rate. Then multiply that number by the number of days in the billing cycle. This shows you how much interest you’ll pay in a month.

    A quick example

    If you have a credit card with a $1,000 balance and 20% APR, your daily interest rate would be 0.0548%. Assuming you don’t add to the debt, you’ll be charged around $0.55 in interest every day. If there are 30 days in the billing cycle, you’ll pay $16.50 in interest for the month.

    How to avoid paying credit card interest

    When you get a credit card statement each month, you’ll see a minimum payment amount listed. This is often a flat rate or a small percentage of your balance (usually 3%), whichever is higher. 

    While it’s tempting to just pay the minimum payment your credit card issuer asks for, doing so guarantees you’ll be charged interest because you’ll be carrying a balance into the following month. 

    Instead, make a point of paying off your balance in full every month. Not only will you avoid paying credit card interest, but your card issuer will report these payments to the credit monitoring bureaus, which can boost your credit score. Plus, the cash back or rewards you earn with the card won’t be offset by the interest you’re charged, so you truly get more out of using your card.

    How to reduce credit card debt

    If you already have a credit card balance, don’t despair. There are strategic things you can do to get out from under credit card debt.

    1. Negotiate with your credit card provider

    As a first step, call your bank or credit card provider to request a lower interest rate. Your card issuer may be willing to work with you, so don’t hesitate to ask. They might agree to lower your rate, offer to switch you to a lower-interest card, or create a repayment plan that works for your situation—but you’ll never know if you don’t ask.

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    2. Make a budget and pay with cash or debit

    It’s important to honestly track your income and expenses so you can trim unnecessary costs. Stop charging purchases to your credit cards and switch to cash or debit, instead.

    While it might seem difficult, try to contribute to an emergency savings fund. If an unexpected expense comes up (like an appliance repair or vet bill), you can pull from your fund rather than charge it to your credit card.

    3. Open a balance transfer credit card

    If you have significant debt, find a balance transfer credit card with a great promotional rate. Then, move your existing balance to the card. You can quickly pay down the balance while you’re not being charged interest. The golden rule of balance transfer cards: never charge new purchases to the card.

    Canada’s best credit cards for balance transfers

    4. Try the avalanche or snowball repayment strategy

    There are two main approaches to paying off debt:

    • Avalanche method: Focus on paying off the debt with the highest interest rate first, while making only the minimum payments on your other accounts. Once the highest-interest debt is paid off, move on to the next-highest-interest debt.
    • Snowball method: Start by paying off the debt with the smallest balance first, while continuing to make minimum payments on your other debts. After clearing one debt, move to the next-smallest balance. This method may cost more in interest over time, but it can provide strong motivation and momentum to stay on track with debt repayment.

    5. Work with a credit counselling agency.

    It’s completely understandable to feel overwhelmed by your credit card debt, which is why a credit counsellor can be so helpful. Speak to representatives from your financial institution, a credit counselling agency, or a debt consolidation program to discuss your options. They can help you create a tailored plan to resolve the situation.

    5. Consider debt consolidation.

    If you’re juggling multiple loans and credit card balances and having trouble paying them off, it may make sense to consolidate your debt. This means combining two or more debts into one, with just one payment to make each month.

    Another option is a debt consolidation loan from a bank or other financial institution. Or you could work with a credit counselling agency to negotiate a debt consolidation program (DCP) or consumer proposal (repaying only part of your debt) with your lenders.

    Learn more about each of these options by reading “How to consolidate debt in Canada” and “Who should Canadians consult for debt advice?”

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    Jessica Gibson

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  • Mortgage affordability calculator – MoneySense

    Mortgage affordability calculator – MoneySense

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    Mortgage affordability is an essential part of setting up your home-buying budget, and it’s based on a many factors—more on those later. If you’re looking to buy a home, one of the first things you’ll want to know is your mortgage affordability. And for that, you should start by consulting an online calculator.

    You’re 2 minutes away from getting the best mortgage rates in CanadaAnswer a few quick questions to get a personalized rate quote*You will be leaving MoneySense. Just close the tab to return.

    What is mortgage affordability?

    When people say “mortgage affordability” they’re referring to the maximum mortgage amount someone can afford to borrow, based on their gross income, debt payments and living costs. In short, the higher your mortgage affordability amount, the more money you could borrow to buy your new home. 

    What factors help to determine mortgage affordability? These include your gross household income, the monthly expenses associated with the property you want to buy (think: mortgage payments, property taxes, heating costs and condo fees), as well as your debt obligations (credit card payments and car loans). When you complete a mortgage application, the lender may also take your credit history into account.

    Watch: What is mortgage affordability?

    Why should you use a mortgage affordability calculator? 

    Using a mortgage affordability calculator is an important first step towards determining how much you can spend on a home. These calculators take your gross income, debts and other living expenses to calculate the maximum amount you can borrow as a mortgage. Together, your down payment and mortgage amount will give you an estimate of the maximum you can spend on a home. This, in turn, can help you decide if buying real estate makes sense for you financially. It can also help to narrow the search for your dream home.

    With a mortgage affordability calculator, you can play with the inputs to see the impact they have on your maximum affordability. For example, by paying down debt (which reduces your overall debt load), you should be able to obtain a larger mortgage. Similarly, a jump in household income will allow you to borrow more money, too.

    Since these calculations are based on averages, it’s good practice to confirm what you can afford on a mortgage with a mortgage lender, who will take the nuances of your financial situation into account. For example, if you have a credit score that’s under 600, you may have difficulty qualifying for a mortgage from a top-tier lender and may need to consult alternative lenders, which a mortgage broker can help with.

    How does it work?

    To use the mortgage affordability calculator, you’ll need to gather the following information:

    • Your income
    • Your co-applicant’s income (if applicable)
    • Your monthly debt payments, including credit cards, car payments and other loan expenses
    • Your expected monthly living costs in your new home, including property tax, condo fees and heating costs, as applicable

    These factors are used by lenders to calculate two ratios that serve as guidelines in determining how much you can afford. They are called the gross debt service (GDS) ratio and the total debt service (TDS) ratio. 

    Gross debt service ratio

    Your GDS ratio is based on your monthly housing costs (mortgage principal and interest, property taxes and heating expenses and condo fees, if applicable), divided by your gross household income (calculated on a per-month basis). For example, let’s say you have a gross household income of $100,000 per year. If your new home costs you $3,000 per month, you would have a GDS ratio of 36%. Your GDS ratio cannot exceed 39%, according to the Canada Housing and Mortgage Corporation (CMHC).

    Total debt service ratio

    The other ratio used to calculate affordability is your TDS ratio. This ratio takes the above housing expenses and adds your credit card interest, car payments and other loan expenses, then divides it by your gross household income (calculated on a per-month basis). For example, if your household brings in $100,000 per year, your housing costs amount to $3,000 per month and you spend $500 per month on other debts, you would have a TDS ratio of 42%. For the home to be affordable according to CMHC, your TDS ratio cannot exceed 44%.

    Mortgage affordability versus your maximum purchase price

    There’s a difference between how much you can afford to borrow for your mortgage and the maximum you can (or should) spend on a home. 

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    Jordann Brown

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  • Mortgage refinance calculator – MoneySense

    Mortgage refinance calculator – MoneySense

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    Depending on your circumstances, refinancing your mortgage can be a smart financial choice. However, while refinancing can lead to substantial savings, it can also come with steep costs. That’s when a mortgage refinance calculator can come in. It gives you a quick breakdown of the financial pros and cons of refinancing, which should make it easier for you to decided on the best course of action.

    What is a mortgage refinance?

    To refinance your mortgage means to break your current mortgage contract and negotiate a new one, either with the same lender or a new one. When you refinance your mortgage, you are taking out a new mortgage loan under different terms and paying off your existing one. Sometimes it makes financial sense to refinance a mortgage, but note that doing this before your mortgage is up for renewal can result in prepayment penalty fees. Whether or not to refinance a mortgage is a question many borrowers face at some point. A mortgage refinance calculator can help you decide. 

    How to use a mortgage refinance calculator

    A mortgage refinance can save you money, but it can also come at a significant cost. To help you weigh these pros and cons, the Ratehub mortgage refinance calculator above estimates the fees involved in breaking your mortgage agreement and calculates what your new mortgage payment would be under revised terms. (MoneySense.ca and Ratehub.ca are both owned by Ratehub Inc.)

    Based on the information you enter, it provides four pieces of information useful to home owners considering a refinance. For each scenario (sticking with your current contract and signing a new one), it shows you: the total mortgage amount, the amount of equity you can access, the penalty paid for breaking the mortgage, and the monthly mortgage payment (based on the interest rate you select).  

    Of course, every person’s situation is unique. Though a mortgage refinance calculator is a helpful tool, it’s always good to speak to an expert or mortgage broker, who can discuss all the specifics of your financial situation, before making a final decision. 

    You’re 2 minutes away from getting the best mortgage rates in CanadaAnswer a few quick questions to get a personalized rate quote*You will be leaving MoneySense. Just close the tab to return.

    When should you refinance your mortgage? 

    There are few reasons you may want to break your current mortgage contract and refinance. 

    1. Taking advantage of lower interest rates. Negotiating a lower interest rate can reduce your regular mortgage payment, thus making your mortgage more affordable. It can also save you tens of thousands of dollars over the course of your mortgage. However, any savings that come from lower mortgage payments must be weighed against the cost of prepayment penalties, which can easily add up to thousands of dollars (more on that below). 
    2. Accessing the equity in your home. As you make payments on your mortgage, you steadily build up equity in your property. Your home equity is the difference between the current market value of your property and how much you still owe on your mortgage. Once you’ve built up sufficient equity, you may be able to borrow up to 80% of the appraised value of your home, minus the remaining balance on your mortgage. You can put this money towards home renovations, investment opportunities or even your children’s education. 

    You may also be able to get a home equity line of credit (HELOC), a secured form a credit. With a HELOC, you can access 65% to 80% of your home’s appraised value. Rather than having to break your mortgage and receiving the equity in a lump sum, you can use a HELOC to access the money as needed (the same way other lines of credit work). You only borrow and pay interest on the funds you need. 

    Finally, you may want to refinance your mortgage to consolidate debt. By taking out a mortgage that is bigger than your current one, you can put the extra cash towards paying off higher-interest debt, such as credit card debt, helping yourself save money in the long run. 

    Be aware of prepayment penalties

    Just as there are good reasons to refinance a mortgage, there may be reasons to stick with your current one. A common reason people decide not to refinance is the high cost of prepayment penalties, which lenders charge when you break a mortgage contract early. 

    Fixed-rate mortgage holders typically pay the higher of three months’ interest on their remaining mortgage balance or the interest rate differential (IRD), a penalty based on the difference between your current mortgage rate and the rate the lender would use if lending the funds today. Variable-rate mortgage holders are penalized three months’ interest. (Note: Penalties may vary based on the financial institution, original mortgage contract, term length and more.)

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    Sandra MacGregor

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