Most Canadians have some type of debt obligation, including one or more of the following: a mortgage, car payment, line of credit, consumer loan, or credit card debt. For some individuals and families, debt is a source of major concern and cause severe anxiety, stress, and financial instability. While you may choose to deal with your debt in your own way, some people do not know or understand all of the options available when it comes to paying off and getting rid of debt. In this article, we will dive into two concepts that can make your journey towards financial stability both possible and accessible: debt consolidation and mortgage refinancing.
What is Debt Consolidation?
Debt consolidation involves combining multiple loans into one. If your credit card carries a high-interest rate, it may be beneficial to transfer the balance to an existing line of credit or to consolidate the loan by refinancing your mortgage. The benefits of debt consolidation include having only one monthly payment to worry about and, depending on the debt you carry, paying less than before. A mortgage lender can help you determine if debt consolidation is a good option for you.
What is Mortgage Refinancing?
Refinancing is different than mortgage renewal. Refinancing essentially allows you to replace your current mortgage or loan with a new one under different terms. Individuals may choose to refinance in order to change mortgage lenders, access lower interest rates, shorten the loan term, or consolidate debt. When making any decisions regarding changes to your mortgage, you should seek advice from a professional mortgage investment corporation to help you understand the pros and cons of your unique situation.
Consolidation Through Refinancing
Refinancing your mortgage as a means of consolidating loans allows you to replace high-interest debt with low-interest debt. Mortgages typically have significantly lower interest rates than credit cards and other typical consumer debt. Tapping into the equity built up in your home can potentially free up hundreds of dollars in cash flow each month and save you from high and unnecessary payments. Even though your total mortgage will increase, your ability to pay off debt faster will also be enhanced.
If you choose to consolidate your debt through mortgage refinancing, you should be prepared to avoid racking up additional debt on your credit cards once the balance is paid off. Debt consolidation can help you get out of debt faster, but it shouldn’t be a catalyst for spending even more down the road.
Advantages of Refinancing to Pay Off Debt
1.Lower Interest Rates
Take advantage of the low-interest rates offered by your mortgage investment corporation or another mortgage lender. Paying less in interest each month can help you pay off debt faster.
2. Fixed Interest Rates
When you enter into a mortgage contract, you may choose to select a fixed-rate loan. While credit card companies can increase interest rates at any time, locking in to a fixed-rate mortgage will allow you to set a consistent budget for debt repayment and eliminate any future surprises.
3. One Monthly Payment
Taking care of only one monthly payment will significantly simplify your monthly financial obligations. Having several monthly payments can make it easy to forget or miss one, which can impact your credit score. Keep it simple with a single amount you won’t easily forget.
4. Lower Monthly Payment
Not only will your debt be consolidated into one overall payment, but it could also end up being a significantly lower amount. The remainder left between what you were previously paying and your new monthly payment could mean an extra few hundred dollars each month. You may choose to pocket this residual cash, invest it, put it towards your mortgage, or keep it in a savings account.
5. Improve Your Credit Score
When you refinance your mortgage to consolidate your debt, your mortgage will increase slightly while your credit card will be paid down to zero. The Canadian credit bureau highly favours loan payment in full. As a result, your credit score, whether good or bad, will show significant improvement.
Tips From a Mortgage Investment Corporation
While debt consolidation and mortgage refinancing may be excellent options for some people, they may not make sense for everyone. Be sure to discuss your options with your bank, broker, or mortgage investment corporation. A professional can help evaluate the long-term advantages and disadvantages of these changes. They will encourage you to consider any fees associated with the transaction, whether or not you should consolidate all debts or just a few, how long you plan to stay in the home you are currently in, and how current interest rates are forecasted to rise or fall based on the ever-changing economic climate.
Whether you’re looking to consolidate your debt, refinance your mortgage or apply for a new mortgage, Alta West Capital can help. We offer a number of lending solutions for first time buyers, individuals and families that are new to Canada, self-employed business owners, real estate investors and more. Alta West loans are fast and flexible to fit your needs. Visit our website to apply online or contact us directly — call (403) 254-9075 or email [email protected]