The holiday season is a wonderful time of year filled with tradition. These traditions include great food, and good times spent with friends and family. Unfortunately, one of the realities of the holiday season is that it can be very tough on families who are experiencing debt and other forms of financial uncertainty. Dealing with debt can be very overwhelming, with interest payments starting to add up and no clear end in sight. Whether your debt comes from student loans, credit card bills, home renovations, or other less conventional forms, you’re not alone. A large number of Canadians struggle with debt, and it’s something that can leave us feeling helpless at times. Earlier this month, I talked about the factors that are continuing to keep Canadians in debt, and why it can be difficult to escape the never-ending cycle.
Luckily, you always have options. No matter how bad your debt or financial picture gets, there is always a way out. Consolidating your debt through a mortgage can be an option to take control of your finances following the holiday season. Here, we talk more about why you might want to consolidate your debt with a mortgage.
What is debt consolidation?
Debt consolidation traditionally involves combining two or more loans into one. Let’s use credit card debt as an example. Envision you have two credit cards with high-interest rates between 15 per cent and 25 per cent that you’re struggling to pay off among other bills and expenses. You might be doing your best to make your payments every month, but it still feels like you’re barely making a dent and will never be able to pay off everything. However, you can choose to roll those unsecured debts into one secured loan. Secured loans offer much lower interest rate that are between four and 10 per cent. Rolling the high-interest debt into one lower interest loan can save you a lot of money in the long run. The money that you end up saving by paying a lower interest loan can end up going straight towards the principal payment itself.
This will allow you to pay off the debt faster and more efficiently. Not only will consolidating debt save you money, but it will improve your credit score in the process.
Why consolidate debt into a mortgage?
In many cases, the lowest possible cost for restructuring debt is through a mortgage refinance. Refinancing your current mortgage into a consolidation loan actually combines all of your debt into a single new payment. If you have high-interest loans and you’re only paying the interest rather than the principal, this can be a great option.
Through a debt consolidation refinance, borrowers are able to pull out home equity while securing a low-interest rate for a loan. The equity pulled out can be used to pay off the high-interest debt. It’s important to keep in mind, however, that a debt consolidation mortgage might be different than your original mortgage. The interest rates might be slightly higher and payment schedules may vary. You can read more about refinancing your mortgage in my blog from Financial Literacy Month on Financial Breathing Room Through Refinancing.
Is a debt consolidation refinance right for me?
Ultimately, consolidating your debt into a mortgage can allow you to borrow additional funds from a new mortgage. This leads to lower interest rates and lower monthly payments. Consolidating your mortgage might be the big move you need to make to take back control of your life and start living debt-free again. Always keep in mind that when in this situation, you should talk with a mortgage professional, who is able to see your entire financial picture and recommend the best solution for you moving forward.
Does consolidating your debt into a mortgage seem like a potential fit for you? One of the best aspects of my job is helping my clients achieve financial breathing room through refinancing. I would love the opportunity to help you overcome your debt situation. To schedule a consultation, you can book an appointment with me right here.