Home Refinancing can Help You Get Out of Debt
All week long we’ve been bringing you some pretty scary statistics when it comes to debt. The scariest stats of all though were probably brought forward yesterday, when we showed that Canadians now have an average debt to income ratio of about 161%. But we never sound the panic alarm without at least offering a small ray of hope, and in this case it comes in the form of debt consolidation of home refinancing.
Many homeowners think that in order to consolidate their debt they must take out a second mortgage. This is a very simple and straightforward way to do it. You apply for a HELOC or a home equity loan, get a sizable amount of cash upon the closing of the loan, and use it to pay off all of your other debts. If you can find the right second mortgage, this could be a great option; but that’s not always the case. Did you know that second mortgages can come with interest rates as high as 17%? If you’re trying to pay off a credit card that has 19% interest, you’re not going to get too far too fast. Of course, not all second mortgages have that high rate, but some do. And if that’s all you’re being offered, it’s probably not your best option. Instead, home refinancing might be.
With a home refinance, you simply change the terms of your current mortgage. So if you’re paying a higher interest, you can refinance at a lower interest rate. This can be a great option for those that haven’t touched their mortgage in the past couple of years while rates have been at their historical lows. Then, you can use that money you’re saving on your mortgage to pay off your existing debts with it.
With home refinancing you can also change the amount of your mortgage. So if you only owe $100,000 right now, you can increase that amount to $130,000 and use that extra $30,000 to pay off debt.
There are lots of options you have when you choose to refinance your home; and one of them could be just what you need in order to get out of debt. Remember though, to speak to a mortgage broker before you do anything to your mortgage. Home refinances can also be expensive, negating the very reason you’re considering using one. If that’s the case, a second mortgage may actually be cheaper – but only a mortgage broker can help you figure that out.
Yes, the information we’ve brought up this week regarding our country’s debt, our province’s debt, and our own debt has been frightening to say the least. But know that there are options to help you get out of your own debt situation, and then call us so we can help walk you through the process.