If you have both a mortgage and a chunk of high-interest debt, borrowing against your equity in the form of refinancing is one option to tackle the latter. Of course, it goes without saying that this option isn’t for everyone – it all depends on your income, financial security and stability. During a strange economic, uncertain time like this, it’s a good idea to consider the pros and cons of refinancing to consolidate debt before doing so. Now is the time to inform yourself before diving into this solution. Today, let’s help you make sense of it.
Simply put, refinancing your mortgage means that you’ll be rolling your existing home loan into your other high-interest debt. Therefore, there’s only one minimum payment to deal with every month. This makes it easier to budget, again on a monthly basis, and plan ahead, painting a clearer picture of your financial situation as time goes on and payments go in. Best of all, you’ll likely be able to secure a lower interest rate for this consolidated debt through a single creditor, rather than multiple rates from multiple lenders that can otherwise cause innumerable headaches.
Aside from the lower interest rate from a single lender, you can also take advantage of a higher credit limit if your credit score is in good standing. For example, let’s say that you recently purchased your first home on a fixed-rate mortgage, but you ended up shelling out for renovations or new furnishings through other credit lending options. Refinancing your mortgage to roll all this debt into one easy-to-digest line of credit makes it easier to pay your bills and keep track of expenses, plus you’ll save on interest in the process. The clients I’ve worked with on refinancing have been greatly relieved to say goodbye to mounting fees, primarily owed to the 20 percent interest on their cards of choice. Don’t forget, this can stack if you don’t keep up with payments, making for a vicious cycle if you’re not careful! That’s why refinancing can literally save the day, not to mention thousands of dollars when considering the average cost of a home and household debt.
Whether this is your first home or your fourth doesn’t matter. As long as you have at least 20 percent equity in your home, can pass a mortgage stress test, secure preapproval and start paying into your mortgage, refinancing is an option that remains on the table. Some individuals use their equity to do this to roll in vacation and car expenses, renovations and other large expenses that could otherwise rack up a ridiculous amount of interest. In addition, you may even be able to reduce mortgage interest come tax time – something that normally can’t be done with mounting interest on a credit card. In that sense, not only can you drive down interest costs through consolidation, but you can save even more money on top of that. Talk about a win-win scenario!
The best perk associated with refinancing a mortgage to consolidate debt is that it can be paid off sooner for less, sure, but have you considered the after-effects of doing this? Plenty of my clients have gone on to invest heavily into renovating and expanding the size of their home once their debt is paid, some borrowing against equity yet again as it can be cheaper than simply paying off a credit card. The more you save in time and money, the more you can do with your beautiful home and the loved ones who share it with you.
Want to learn more about refinancing options for your mortgage? With my expertise and your time, we can achieve great things together. Contact me today if you’re ready to say goodbye to sky-high interest rates and hello to stable, streamlined consolidation.
Andrew Thake is a seasoned mortgage broker with over 15 years of industry experience. He’s assisted more than 2,200 clients in finding their ideal mortgage solutions. Recognized for his excellence, Andrew has received high honours and awards, including the National Rookie of the Year from TD Canada Trust and recognition as a Top 10 Ottawa Mortgage Broker in 2023. He has also been inducted into the Hall of Fame at Dominion Lending Centres and has consistently received their Platinum Award during his tenure as a mortgage broker.
Andrew’s dedication lies in serving his clients and prioritizing their needs with an empathetic approach. Throughout the application process, he provides tailored, informed, and efficient services to ensure the best mortgage solutions for his client’s unique circumstances. The best part of Andrew’s job is when he gets to see the joy on his clients’ faces following their mortgage approval.