With the consumer debt levels in Canada reaching all-time highs over the last few years, money (or perhaps a lack of money) has been a common topic of conversation. As a result, debt relief is also a common subject, and it seems that no matter where you turn these days, debt reduction is the topic of the day. And one of the debt reduction solutions that is becoming increasingly popular is mortgage refinancing.
If you are in debt and considering refinancing your mortgage to get out of it, it might be a smart choice. Many homeowners struggling with debt see mortgage refinancing as an attractive option for various reasons. Firstly, mortgage interest is usually far lower than credit card interest (one of the main types of consumer debt) – sometimes by as much as 20%. By paying off one with the other you can end up saving a ton in interest. Secondly, this works to consolidate all of those different monthly payments into one neat, tidy sum – far easier to track and pay (only past balances though, not charges made after the consolidation). It is really no surprise that mortgage refinancing seems enticing, is it?
However, mortgage refinancing to consolidate debt isn’t the right option for everyone. Of course, if you don’t own a home, this option isn’t going to work for you. But even if you do, it may not work for several reasons. To begin with, Canadian Mortgage and Housing Corporation (CMHC) guidelines have made it more difficult than previously for homeowners to refinance. Changes to these guidelines mean that CMHC will only insure a refinance of up to 80% of a home’s value, so if your debt means that you will exceed this 80%, the option may not be the one for you. Furthermore, in order to find approval for mortgage refinancing your credit has to be in great shape. Anything less than pristine is usually an automatic no.
If you meet the requirements and can consolidate your debt by refinancing your mortgage, then by all means, get to it! As mentioned, for some people this is the most intelligent debt reduction strategy available. However, if you are worried that your current debts will exceed the maximum amount allowed by CMHC or if your credit is less than stellar, it might be time to consider some other options. A great place to start to discuss the various solutions that would exist – and how they would work for your unique circumstances – is a debt reduction company, one that has the experience and knowledge to help you get out of debt.
For more information about refinancing your mortgage for debt consolidation, or to find out about the other debt reduction strategies available, please contact DebtCare Canada today by calling 1-888-890-0888 or visit www.debtcare.ca.