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Refinancing
Thinking of refinancing your current mortgage?
The refinancing process can seem complex, so we've put together more information on some of the main steps of refinancing!
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Refinancing mortgages to pay off debt has become extremely common. With house prices increasing and recent mortgage rates at historic lows, people are realizing they have a lot of equity sitting in their homes. At the same time, they're making comparatively high interest payments on car loans, lines of credit and credit cards. So refinancing allows them to pay off their high interest debt with the much lower rates of a mortgage.
How much lower? Today, consumer loans are fluctuating anywhere from Prime plus 2% to Prime plus 5%. Credit card interest rates range from a low of about 9% right up to 18-19%. And if it's a store credit card, it can be even higher. Now compare those rates to today's lower rates, and the savings can be very significant!
Typically, the best time to refinance your mortgage for debt repayment is when it's coming due or you're selling one house and buying another. But depending on your situation, you may also save by breaking out of an existing mortgage.
We can do the math and show you how much you're going to save regardless of which route you choose. But just as important, we can also provide valuable advice about managing debt more effectively.
The goal of refinancing should be to save interest and get out of debt faster. That usually means increasing your mortgage payments to reflect the new amount you've added to the mortgage. Another consideration is what the debt is for. If it's for investment purposes such as paying off a renovation loan and a mortgage on a second property, then you're not really incurring more debt. But if you're refinancing to pay off car loans and ongoing credit card purchases, it's important to understand that you're going to have to change your spending habits or you'll be refinancing again before you know it. To help with this process, we like to point out how much refinancing can save you each month and suggest you use these extra funds to start an RRSP, make lump sum payments on your mortgage or establish a saving plan.
But how do you know whether you have enough equity to consider refinancing? Just give us a call! We'll talk about your needs and financial realities, then we'll ascertain whether or not refinancing makes sense for you as part of an overall debt management strategy.
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