Debt is a big concern for many Canadians, especially since the cost of living is often rising quicker than our salaries. Although we do our best to be fiscally responsible and smart money managers, it isn’t always easy. Unforeseen circumstances and life situations such as illness or divorce may require us to take out a personal loan or put more money on a credit card that we can pay down comfortably. High-interest debt can be challenging to manage because so much of your payment goes toward the interest, rather than the principal.

Using home equity to manage debt

Homeownership is an evolving journey and there may come a time when you need to streamline your finances. As a homeowner, you can take advantage of the equity in your home to help pay down your debt by refinancing your mortgage. Rolling high-interest debt into your monthly mortgage payments allows you to consolidate your debt into one loan at a lower interest rate. This empowers you to improve your current monetary situation and relieve any stress associated with not being able to meet your financial obligations.

Leveraging the equity in your home is a cost-effective and convenient way to borrow money, and can result in additional monthly cash flow. Typically, you can borrow up to 80% of your home’s appraised value. The increased cash flow resulting from your debt consolidation should be invested or saved to help you achieve and maintain financial stability.

If your mortgage is coming up for renewal, now’s the perfect time to consolidate debt at no extra charge for breaking your mortgage.

It is also, however, often more cost-effective to break your current mortgage mid-term as opposed to waiting until renewal in order to combine your non-mortgage debt into a new mortgage. While there is a penalty charged to break your existing mortgage, it may still be advantageous to do so in order to pay off your higher-interest debt.

We can help you weigh your options based on the penalty you’d face to break your current mortgage. Penalties vary widely from lender to lender.

Making healthy financial decisions

Once you’ve hit reset on your debt by tapping into your home equity, it’s important not to fall back into a habit of over-extending your finances.

The ease of payment and enticement of rewards, points or cash-back options on most credit cards makes them appealing, but don’t forget the high interest they carry. The interest rate on a credit card or personal loan is at least 10% higher than your mortgage rate – and even as high as 25%+ above your mortgage rate. That’s a huge difference!

Have questions about debt consolidation options or your mortgage in general? Answers are a call or email away!