Have you thought about how today’s low mortgage rates affect you personally? Debt consolidation and refinancing are hot topics right now. Is this the right choice for you? Maybe you’ve considered taking out equity to buy a rental property or do a home renovation. Or maybe a responsible family member or friend has told you to increase your mortgage payments to rid yourself of that debt. There are so many options out there and many people do not fully understand the terms and conditions of the biggest investment of their life. here is more to a mortgage than just making the monthly payments every month for 25 to-30 years. Let’s talk about how you can make your home work for you and potentially save you thousands of dollars in the long run.
Most homeowners have equity in their homes if they’ve owned them for a number of years and/or their home values have increased. Plus, many homeowners also carry a substantial amount of consumer debt or other types of loans with high interest payments. As such, there are many reasons to consider refinancing your home, and it’s more common than you think. In Canada, most lenders will refinance up to 80% of the appraised value of the property, freeing up cash (equity) for you to live more comfortably and get financially ahead. With low mortgage rates, you may want to consider refinancing even if that means paying a small penalty to break your current mortgage. With even just half a percent less than what you’re currently paying can save you thousands of dollars over time. You gain the benefit of lower monthly payments and every dollar you save now is one less dollar you have to pay the bank.
Consumer debt is the number one reason people refinance their homes—to consolidate debt. If you are carrying any amount of existing debt with a higher interest rate than your mortgage rate (think credit cards, lines of credit, student loans, or car payments with high interest payments) you might want to think about refinancing your home to include these debts. It can significantly reduce your monthly payments, not to mention the interest you are paying the bank every month.
| PAYMENT TYPE | AMOUNT | MONTHLY PAYMENTS |
| Existing Mortgage @2.99% | $250,000.00 | $1,050.18 |
| Visa Card @19.75% | $7,500.00 | $250.00 |
| Car Loan @6.50% | $15,000.00 | $450.00 |
| Dept. Store @28% | $3,500.00 | $125.00 |
| Home Renovations LOC | $20,000.00 | $200.00 |
| TOTAL: | $296,000.00 | $2,118.79 |
| CONSOLIDATE WITH:
New Mortgage @ 2.59% (approx. current 5 yr. fixed rate) |
$296,000.00 | $1,243.41 |
| MONTHLY SAVINGS: | $831.77 |
Can you relate to this financial situation in any way? The monthly savings through debt consolidation can dramatically improve your quality of life, lower your stress level and help you sleep at night. If you put $400 dollars of the $831 you would be saving per month towards your principal mortgage amount, you could also pay off your mortgage 10 years earlier, and that includes all your debts!
This might also be a good time to renovate your kitchen or develop that basement that you have been talking about for years. These types of home improvements will add tremendous value to your home while the cost of borrowing is minimal. Bathroom renovation, building a garage, or adding square footage onto the home are also excellent investments.
Investment property can also be a good option if you have substantial equity in your owner-occupied home, the rental market is strong in your area, your credit score is good and you have a desire to be a landlord. In Saskatchewan at this time, this option taking place more and more with people that can qualify. With mortgage rates being so low right now, it gives homebuyers a great opportunity to maximize their wealth by getting tenants to pay off their mortgage loans for them.
Other investment opportunities may also be available to you. This option isn’t for everyone and can be risky. Sometimes an investment opportunity presents itself and with the low mortgage interest rates today, it’s often smarter to leverage your mortgage for a potentially dramatic gain.
One size doesn’t fit all when it comes to finances and financial planning for the future. Make sure to speak to a knowledgeable broker and explore all of your options before committing to big financial decisions. Mortgage Brokers work for you, not the bank. They can help educate you on all areas of finance, credit bureaus, consumer proposals, bankruptcies and to explain all the terms and conditions that you don’t understand. Their services are free of charge and they are passionate about educating people on all options available depending on individual financial goals.
