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How Mortgage Financing Can Help You Reposition Your Debts

How Mortgage Financing Can Help You Reposition Your Debts

posted in Mortgage News

Many Canadians look to their home’s equity when searching for ways to make the most of their finances and reposition their existing debts, and it can be an effective way to do so.

It can be difficult to manage your day-to-day expenses when you’ve got consumer debt, let alone put any money aside for the future. If servicing your debts is forcing you to struggle financially, it might be worth considering a consolidation mortgage.

What does it mean to consolidate your debts?

Also known as debt repositioning, consolidating debts is when homeowners borrow money against their home’s equity to combine their debt with a second mortgage.

For most, this involves securing a home equity line of credit with a lending institution, refinancing an existing mortgage or taking out a second mortgage. There are advantages to each option, which are best discussed with someone qualified in mortgages, such as a mortgage broker.

What types of debt can be consolidated?

Many Canadians choose to reposition the following debts:

  • • Credit cards
  • • Unsecured lines of credit
  • • Car loans
  • • Student loans
  • • Personal or payday loans

Unsecured debt typically carries a high interest rate as a result of the lender having no collateral to fall back on if you can’t make your loan repayments, but because a mortgage is attached securely to your home, lenders have the collateral they need. This means that they’re able to give you lower rates and likely more favorable terms, too.

Consolidating your debts enables you to reposition a high-interest, unsecured debt into a single, much lower payment.

In terms of getting a great deal on a second mortgage, while a low rate of interest is important, your overall goal should be to lower the total cost of borrowing with a mortgage that gives flexibility for prepayments. It may be that your mortgage broker can help you find a mortgage that allows you to increase your payments by as much as 15% each time, double payments, or even make a lump sum payment of up to 15% annually, and all with a great rate.

Additional mortgage payments go straight towards the principal repayment of a loan, meaning that once you’ve consolidated your debts into one, easy to manage single payment, you can then take advantage of the privileges associated with prepayments, by paying more than just the required minimum mortgage amount. This will help you pay off your debts far quicker.

If it sounds as if mortgage financing might be an option you’d like to consider, why not schedule a consultation with a local mortgage broker (it’s always best to go local). A professional broker will assess your existing debt to income ratio, establish your home’s equity, talk you through all the different mortgage options, and then help you reposition your debts to make the most of your finances.

 

Mortgage News

10 dJan, 2023

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