When your debt begins to climb at a rate that seems to be spiraling out of control, or if you are just tired of shelling out money without seeing totals decrease, it might be time to consider a different approach. Making minimum monthly payments is not actually going to get you out of debt – and realizing this, many Canadians have chosen to refinance their mortgages as a way to consolidate debt – but is this the right option for you?
There are several reasons why refinancing your mortgage to consolidate debt can be a smart option. Firstly, because you are consolidating you are getting rid of that laundry list of monthly payments and consolidating them into one, tidy payment. This can make keeping track of payments far easier – and less stressful. Secondly, you can save huge on interest. If you are carrying a number of different credit products, all with varying interest rates, all applied at different periods, you are paying out far more than if you have one larger total at a single interest rate.
With these major positives, there have to be some negatives, right? Well, as appealing an option as mortgage refinancing may be, its benefits are only open to those who qualify. What do we mean? Well, since mortgage refinancing requires upping the lending limit on your current mortgage, you have to actually have a mortgage to qualify (so renters are out). You can’t get a mortgage to consolidate debt, so unless you own your home, this option is not available.
Another issue that many have when attempting to refinance is the fact that your credit needs to be great – but if you are maxed out or have missed payments, the lending institution isn’t necessarily going to have much faith in your ability to repay your debt. Yet another deals with the fact that stricter CMHC lending guidelines have decreased the total refinancing limit to 80% of a home’s value, so if your debt will put you over this threshold, a total consolidation is not feasible.
So, is mortgage refinancing to consolidate debt the best option for you? Despite the downsides associated with qualifying, if you can secure funding it may very well be the most intelligent option. It is also better for your overall credit versus a consumer proposal or bankruptcy – so that is also very attractive.
When you are considering the various options available to get out of debt, mortgage refinancing is one that should be on your list – just be prepared if your credit isn’t stellar or if there is no equity in your home.
For more about mortgage refinancing to consolidate debt please contact DebtCare by calling 1 (888) 890-0888.