High Interest Non-mortgage debt?
Many people may be in a situation where they have accumulated debts on high interest accounts such as credit cards and other credit sources. The interest rates that are being charged on these loans may be quite high and may also be rising with the Bank of Canada interest rate hikes.
Homeowners may have the ability to take advantage of some options that may alleviate the high carrying costs and create a better cash flow on a monthly basis. These options may be used to help pay these debts off sooner rather than later or help with monthly expenses that have risen in the current inflationary market.
One option would be to refinance the first mortgage and add the non-mortgage debt to the new mortgage. This would allow the debts to be amortized for up to 30 years with the existing mortgage which would reduce the monthly payments. This would not only increase the monthly cash flow but would also make budgeting quite a bit easier as there would only be one mortgage payment as opposed to a mortgage payment plus multiple other debt payments. The increased cash flow could be used to make additional payments on the mortgage to help pay it off sooner or the funds could be used to cover monthly expenses, save for emergencies or invest. The credit score may also benefit and become higher or better as all the non-mortgage debt has been paid off and show zero in balances which decreases credit utilization percentages (The percentage of the limits available on each non-mortgage debt).
What if the first mortgage is a good low fixed rate and the client does not want to lose this rate by refinancing the entire mortgage at current rates? In this case it may be better to take out a HELOC (Home equity line of credit). This option would utilize the equity available in the home in order to lend funds to pay off the debts. As this option is still secured to the home the interest rates may be very competitive and much lower than the non-mortgage debt. This option could be used to pay off the debt and still create a very good cash flow per month. This option could be set up in a way so that when the first mortgage comes up for renewal, the HELOC could be added. This way the interest rate on the first mortgage can still be utilized to its maximum benefit and the client can take advantage of the lower monthly payments along the way.
Please reach out to us for a no cost evaluation of your situation. We would be more than happy to offer and explain the many different options that may be available for you.
Victor and Taufeeq
Mortgage Agents (Level 2)
Victor - 416-566-2516
Taufeeq - 905-699-7831
Mortgage District||POWERED BY Mortgage Architects (FSRA 12864), each office independently owned and operated.