Taya Weiszhaar, Mortgage Agent

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Refinance to consolidate debt

To no one’s surprise on May 25, the central bank left its key interest rate unchanged at 0.5 per cent.

While the bank said it expects the economy to "rebound”, it stopped short of discussing the likelihood that this rebound will be enough to keep overall 2016 growth on track with its previous goal of 1.7%.

Many economists are not expecting Governor Stephen Poloz to start pushing up the bank’s overnight rate for at least another year.

While low interest rates and soaring regional housing markets continue to be the norm, Canadians are burdened with record-high debt loads, which have been rising since 2011. 

If you’re sitting with equity in your home yet can’t seem to manage your debt payments, perhaps refinancing is the answer, especially in this low-interest rate environment.

With credit card interest rates often pushing the 20% range, five-year fixed-rate mortgages in the 2.49% to 2.69% range and variable rates even lower, you may want to consider paying off high-interest debts.

Like many financial decisions, you need to look at the big picture.

Here’s what you need to know.

A refinance alters the terms and conditions of your mortgage; specifically if you are increasing the amount of your mortgage to pay off debt.

Your mortgage payment may or may not increase, depending on a number of factors, and you may incur a penalty to break your existing mortgage if you are refinancing midterm.

Depending on your current mortgage you could be paying off the refinanced debt at a much lower interest rate, which could save you thousands of dollars in interest in the long run.

Here are some reasons to refinance:

  • Decrease your overall monthly debt payments by using your equity to pay off those high-interest credit cards or unsecured loans, which can help you better manage your budget.

  • You can refinance to purchase another property. Using the existing equity in your home can be a great way to buy a rental property which, if done right, can also make the interest you pay tax deductible.


  • You could also take out some of the equity for investment purposes -- an option that many homeowners consider this time of year.


  • Or you may want to refinance to renovate.

Repayment

Remember that borrowing against your property is not free money. You need to understand the costs associated with having to repay this loan.

Spending Habits

While using the equity in your home to pay off debt certainly may help to ease financial stress, there may still be challenges.

Some people have experienced a job lay-off or an illness that contributed to their unmanageable debt loads. Make sure you understand what got you into your current situation.

Let's Talk

As you can see there are many factors to consider before deciding to refinance. Each individual’s financial situation is different.

Let’s talk about your unique situation and the options available to you.

The freedom that being completely debt-free brings is a dream for many Canadians.

If you're unsure of what your next step should be, let's talk. Together we can review your mortgage, look at your financial picture and devise a mortgage-reduction plan that works for you.




Taya&TMG
Wednesday, June 22, 2016

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