“Wouldn’t it make more sense if the deposits and borrowings were combined? Why not have every dollar you earn paying down your debts until you need to spend that money? Your income can instantly reduce what you have borrowed. As you pay bills and other expenses throughout the month, the amount you owe will slowly go back up, but you’ll still be much further ahead. Every day that even a dollar of your income stays in your account, you have less debt and so, you pay less interest.”
Sounds great does it not?
Buyers beware. Except for the most disciplined of Canadians, these all in one financial products, similar to a line of credit, simply don’t work and end up costing you thousands if not tens of thousands in interest. That is why they are popular with investment companies like Manulife and the chartered banks.
The obvious reason is that with essentially no monthly payment required, the average Canadian soon loses the discipline to actually account for a mortgage payment, personal loan, credit card payment etc, as part of the monthly budgeting process. With a traditional mortgage you are forced to make your monthly payment which will involve a pay down on the mortgage principal. Given the choice not to make a payment with an all in one product, it is easy to simply forget that the intent was to pay off this debt as quickly as possible, not keep a maximum balance that carries over from month to month to month.
Those bankers are no dummies. We welcome your comments.
Did you enjoy this article? Subscribe to our Facebook Page for industry news, tips, and blog posts.