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MORTGAGE ARTICLES
Using your mortgage to lower your debt
“Where the heck does it all go?” You’re
looking at your T4 slip from last year… or maybe your most recent pay
stub. Sure, many people wish that those numbers after the dollar sign were
a little higher, but it’s the vanishing act that alarms you most. Tax
time is especially sobering; you can see how much money you made… but
your credit card is still maxed out and you don’t have much to show
for a year’s income.
If you’re looking for the holes in your wallet, start
by making a list of your debts. Are your credit cards teetering at the top
of their limits? Do you make regular use of your overdraft protection at the
bank? Do you have escalating tax liabilities? What about any department store
cards? And – quick – what was the interest rate on those balances
last month? Have you added it up? Many Canadians are startled to see how much
they are actually paying to service their debt.
Industry Canada, which monitors consumer data, reports interest
rates for department store credit cards as high as 28%. Even competitive-rate
credit cards will often run at 18% or more. And this is at a time when some
mortgage rates are still tipping below 5%.
Why do the banks and department stores charge such high rates?
These are unsecured debts, meaning that – if you default on the debt
– the lender has no easy recourse to recover the money. Not surprisingly,
they charge a higher rate – sometimes a MUCH higher rate – to
compensate for the higher risk that an unsecured debt represents. A house
is considered a reliable security, so mortgages often offer the best rates
available anywhere.
Consider this, then. If you have equity in your home, you
can take advantage of attractive mortgage rates to save a bundle on interest
charges. Compare current mortgage rates with the rates charged on your other
debts. Get some professional advice on whether it might pay to do some refinancing
and roll your other debt, such as credit card debt and tax liabilities, into
your mortgage. You can consolidate your debt into fewer payments, save some
money on interest, and improve your cash flow.
You have a few options: A secured line of credit could provide
you with funds up to 75% of the value of your home, minus any mortgage debt
on the home. You can look forward to a substantial reduction in the interest
rate, and all you need to pay each month is the interest. You can do the math
on this comparison yourself, or talk to a mortgage professional. If you are
carrying credit card debt, you’ll be shocked at what you can save with
a secured line of credit.
You could also consider increasing your existing mortgage.
If your mortgage is coming up for renewal, this is the perfect time to reorganize
and consolidate your debts at today’s excellent rates. Even if you are
in the last year or two of your mortgage, it may make sense to re-negotiate
your mortgage now and roll in your other debt at a low rate. Or, you may be
able to benefit from this kind of debt consolidation through a second mortgage.
Your best option - have a professional outline your options
for using a mortgage to consolidate your debt and increase your
cash flow.
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