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Dealing with Debt, your mortgage & COVID-19: for the self-employed

Dealing with Debt, your mortgage & COVID-19: for the self-employed

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Looking back at February in 2020, many self-employed individuals and business owners had no idea their world would change come March 15 onward. COVID-19 has had a vast impact on business owners and support from the government has been tough to navigate on many levels from an HR perspective, an operating standing point and cash flow across the globe as well as locally. Whether you’re self-employed and used to working remotely or you’re business has had to close its doors short-term being financially savvy in these times and able to pivot as needed is crucial to making sure you can reopen when the current bans lift, but also to protect assets like your home, and your bank accounts while not driving yourself into debt you may be unable to recover from.

In short, although you want to help your employees, don’t forget to help yourself. You’ve heard the saying you can’t pour from an empty cup? Well, if you don’t take care of yourself and your personal finances first, your business could suffer long-term possibly to a point where you aren’t able to open even if you wanted to because you just can fund it. I’ve had many friends and clients ask me what I think they should do in terms of their mortgage, their office rent, their long-term savings, and more. Don’t forget I’m more than your mortgage broker, I’m your financial partner and am only a phone call away if you’ve got questions or need a little advice. However, if they are asking, many of you are likely wondering too, so here are a few things to keep in mind while learning how to surf the waves of COVID-19 in the business landscape.

If I’m able, should I defer my mortgage payments?

You could defer your mortgage payments to help alleviate financial strain now, however, you’re going to pay more interest in the long run. For some, the financial weight of your business and maintaining rent while you have limited cash flow, deferring payments may be a good option. But, for those of you that are looking for preventative options on a “just in case” basis, wait as long as possible before you do this. The reason being is that the added interest, in the end, might not make sense in the long run when you are able to cover your mortgage with the cash flow you’ve got coming in right now. If you can cover your mortgage currently, and it’s only slightly limiting you in other areas, it’s a sound financial choice to continue doing so. Look to other places you can cut costs like software subscriptions you might not need, subscription-based apps on your phone you pay for but don’t really use, cleaning services you can put on hold until your office reopens – if, there is no one there, a weekly or bi-weekly cleaning likely doesn’t make sense and the funds from those cut costs, can be better repurposed in other areas.

The government is offering support loans, should I take the money just in case I need it?

If your operating costs haven’t changed, but the money coming in has, a support loan might be a good solution for you in the short term. You can lean on it to pay your overhead costs, to keep your inventory flowing, if you’ve got inventory going out, to pay off suppliers for what you owe them so you don’t run your credit rating into the ground, etc. However, keep in mind that although they aren’t asking for a lot of interest now, you can bet they’ll be asking for their money back later and if you don’t meet their terms at the time of repayment or if you aren’t able to pay it back in a lump sum before they start adding interest, that could possibly put you in an uncomfortable financial position later on. It’s also important to note, what you would use the money for if you did apply for it. Would you spend it on costs you could be cutting right now, but just haven’t yet? Would you use it to keep your staff on the payroll when they have nothing to do and could be collecting CERB instead of being paid on your dime without them generating revenue? All of these decisions are difficult don’t get me wrong, but just make sure you’re not driving up your debt levels without good reason.

If I don’t take the Government loan, and I don’t defer my mortgage what other options do I have?

  1. If you own your home or have an investment property, you could refinance to take advantage of lower interest rates, and span your mortgage over a few more years instead of deferring payments. It’s a similar premise in that if you currently have 10 years left on your mortgage, if you refinance the amount owing over 25 years on a 2-year term for renewal instead of locking in for a 5-year term as we’ve seen many people do in the past, it could drop your mortgage payments to a more manageable level for you at this point, and we can look for a lender that allows you to make a larger lumpsum payment each year so if you have the money later in the year you can top up the amount you pay off your mortgage to what you previously would have been paying off in a year, and in 2 years you can refinance the remaining amount when things have become more financially stable for you to get you back on track to what your new normal is at that point in time.
  2. If you have equity built up in your current mortgage, you could do an equity take-out against your own mortgage to create a safety net for yourself in case you do need a little extra cash in the coming months. Doing so gives you a loan to yourself basically, at a lower interest rate then you would typically see from a bank. If you end up not needing the money, great! Add a lump sum payment, later on, to pay back the money to your mortgage once things have stabilized keeping a little nest egg set aside for unforeseen issues as you rebuild but in the meantime that loan remains in your control instead of interest rates potentially rising on a variable bank loan or having to abruptly be paid back according to the government, when you may or may not have the cash to do so. If you do need the money, and use it wisely, taking a loan from your equity instead of the bank you’ll likely reap the benefits of having a lower interest rate over time and your repayment terms don’t add another monthly payment to your financial plan, as the amount you borrow would be repaid in your current monthly mortgage payments making managing your cash flow a little easier as your rebuild.

Navigating COVID-19 has not been easy for anyone but as a business owner or self-employed individual, however, you do have options. They might take a little strategic planning to put in place but you’re not alone in this process. Talk with your friends, your family, others from your industry, other business owners in your Chamber of Commerce. We’re in this together, and if you’ve got questions about your mortgage and other financial options that are being offered by the bank or the government before you make any decisions, let’s talk. Give me a call at 705-315-0516, and let’s run through a few financial scenarios together to see which options make the most sense for your specific situation. I’m only a phone call away and can help you virtually to make sure the decisions you make today, impact your long-term financial goals as little as possible while overcoming the hurdles you are experiencing in this time of uncertainty.

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