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Mortgage-Matters

To consolidate, or not?

If you are carrying high-interest credit card debt, car loans or other personal loans you know that it can be challenging to pay off everything that you owe. You may have those post-holiday debts hanging over your head.

If you are a homeowner and there is sufficient equity in your property, consolidating all of your debt and including it in your mortgage payment might be the right solution for you. 

There are many benefits to debt consolidation including the following:

  • A much lower monthly interest rate for all of your debts
  • Lower monthly payments
  • The comfort and convenience of making only one monthly payment instead of making multiple payments on your credit cards and other loans
  • Improving your credit score by reducing the amount you owe and now being able to make all of your payments on time

A debt consolidation mortgage is not a quick fix, and a full financial review should be completed with your mortgage broker. There could be costs to break your current mortgage to include those higher interest debts with your mortgage payment. You may be lowering your current monthly payments but now the debt is going to be repaid over a longer period of time. Is that really going to be financially beneficial? It all comes down to the math as the overall cost of borrowing could be higher or lower than what you are currently paying. Crunching all the numbers is the only way to know for sure.

There is also another real danger to consider – are you disciplined enough to stick to a budget going forward and live within your current income or will you be tempted to use those credit cards again and end up in exactly the same situation in the near future? It can become a vicious circle unless you learn to live within your budget. You don’t want to end up in the same place a year from now.

On the other hand, if you are disciplined and can live within a budget the benefits of the increased monthly cash flow could significantly improve your financial situation. These extra funds might be used for investing in your retirement with RRSP contributions and having an emergency financial fund in place for life’s surprises.

There are several possible options to consider for a debt consolidation mortgage, including breaking your current mortgage to include the debt owed, a second mortgage for the consolidation, or a home equity line of credit. A small unsecured personal loan may be sufficient. In an extreme situation it may be necessary to sell your home to clear off all debts.

You may have heard about ‘interest free’ debt consolidation programs where a company will negotiate on your behalf to reduce the debt and arrange a single monthly payment. With very careful consideration this may be a last resort option but be aware that this type of solution will ruin your credit rating for a long time. Get all of the facts before entering into this type of arrangement. 

Now all that’s left is to figure out precisely which solution is best for you to wipe out all those high interest payments. If you would like a complete confidential assessment and discussion of all the possible options, please give me a call at 1-888-561-2679 or email [email protected].





Facing foreclosure?

The thought of losing your home can be one of the most stressful situations you can go through.

If you find yourself in one of these situations you could be facing foreclosure:

  • You are about to miss a mortgage payment because you don’t have the funds to pay
  • You have missed one or two mortgage payments
  • You have received a notice or demand letter from your mortgage lender
  • Or you have been serviced a Petition for foreclosure

If any of this applies to you, this is a serious situation and you may be on your way to foreclosure.

The easiest thing to do is ignore any phone calls from your lender or the demand letter that they may have sent to you but doing so is really the worst thing you can do and here are some of the consequences of ignoring the situation.

  • You won’t have any say in the court proceedings and they will go on without you
  • If the home is sold you will get little if any notice that you have to vacate the property
  • You may have less time to stay in your home than if you had appeared in court

Here’s a brief look at the foreclosure process in British Columbia.

The Statement of Claim

If you fall behind on your mortgage by more than 90 days, the lender has the legal right to bring your financial status into question.

When the Statement of Claim is served to you, you have a period of 15 days to file a statement of defence in rebuttal to the claim statement. If you do not file the rebuttal in time, you are likely to have a default judgment entered against you.

Request for Sale

The lender will then go to court and request the right to sell your home. If the judge grants the request, a certain period of time is set to permit redemption of the home. You have this time to find the funds to pay out the current mortgage plus the court costs and legal fees. This period generally lasts 90-180 days.

Sale of the home

If you have been unable to redeem your home it will then be subject to a court ordered sale and you still have a certain period of time to redeem your home. The lender must appraise the home to determine the fair market value and will then list it for sale.

If you can’t come up with the money to redeem the house by the time the period ends, you will lose the house to a foreclosure sale.

You may have some options to solve this problem but speaking early to a mortgage broker is really your best course of action if you are unable redeem your mortgage by bringing your payments up-to-date along with any legal costs incurred by your lender.

Here are some ways that a mortgage broker can advice you:

  • Perhaps you can refinance to lower your monthly payments to keep you within your budget.
  • We can see if we can obtain a new mortgage with another lender and pay off your current lender
  • We can take a look and see if there is enough equity in your home to make selling it yourself worthwhile
  • Or if we can’t solve your problem then going to court may be the best option

If you fall behind on your mortgage the interest and costs can accumulate very quickly and it is critical to seek assistance early before things get out of your control so please give me a call.



Home Buyers' Plan

Are you considering purchasing your first home next year?

If so, before March 1 could be the best time to implement this strategy if you are thinking about buying this spring.

If you need a source for your down payment, The Home Buyers’ Plan (HBP) will allow you to withdraw up to $25,000 from your RRSP to use in assisting with the purchase of your first home, tax free.

If you are purchasing with someone who is also a first-time home buyer then that amount can be increased to $50,000. You can use any amount up to $25,000 to add to any down payment amount you may have saved or use towards other expenses for purchasing a home.

To provide first-time home buyers with greater access to their RRSP savings to purchase or build a home, Budget 2019 proposes to increase the Home Buyers' Plan withdrawal limit to $35,000.

This would be available for withdrawals made after March 19, 2019. (Please check with your financial institution or the CRA for the current status for withdrawal amounts.)

To help Canadians maintain homeownership, Budget 2019 also proposes that individuals that experience the breakdown of a marriage or common-law partnership be permitted to participate in the Home Buyers' Plan, even if they do not meet the first-time home buyer requirement.

This measure would be available for withdrawals made after 2019.

The amount that you have withdrawn from your RRSP must be paid back into your RRSP account in annual payments and you have 15 years to repay them but if you don’t make your annual payment then it will be added to your annual income and you will be taxed accordingly.

If you make a withdrawal from your RRSP, but do not meet the first-time homebuyer eligibility requirements, this withdrawal will be taxed and you must include it in your income tax return as taxable income.

So what if you don’t have any RRSP savings? You can get your savings working for you in a tax free and efficient way. This strategy might be right for you.

If you have room under your RRSP contribution limit you could secure a RRSP loan and contribute those funds and then later use them towards your down payment. If you have funds sitting in unregistered savings you could also move those into a registered account.

If you aren’t sure whether you have room to contribute, check your Notice of Assessment (NOA) for last year. Each year you are allowed a percentage of your income to contribute to a RRSP and the amount is carried forward and added to the next year’s total either partially or in full if you haven’t contributed.

It’s important to note that the funds you plan to withdraw and put towards the purchase of your home, must be in your account for 90 days prior to your withdrawal.

You do not need to use the withdrawn funds for only your down payment as they may be used for any purpose that assists with the purchase of your first home:

  • closing costs
  • paying off outstanding debt
  • renovations, etc.

You must have a written contract in place agreeing to purchase a home and the home must be owner-occupied within one year.

If you have used the Home Buyers’ Plan in the past, but have not owned a home for four years, you may qualify to withdraw from your RRSP again as long as you or your common-law partner or spouse did not occupy a home that either of you owned in that four year period.

If you would like more information on the RRSP Home Buyers’ Plan, please give me a call at 1-888-561-2679 or email [email protected] and I can give you some guidance and help you decide what is right for your situation.



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Home equity line of credit

HELOC is a type of home equity loan and is a revolving amount of credit that is secured against your property.

You can access up to 65% of your home’s value however the outstanding balance on your mortgage and line of credit combined cannot exceed more than 80% of the value of your home.

It always has a variable rate of interest based on the current prime lending rate which today is 3.95%. Rates generally start at prime plus .50% and up depending on your qualifications and the lender.

It is fully open which allows for flexible prepayment without any penalties. You can use the amount available for any purpose you want and only pay interest on the amount of the outstanding balance. The minimum required payments are interest only.

It’s a great option for accessing equity in your home to put into other investments.

It can be a first position charge or be a second position charge behind your current conventional first mortgage to a maximum of 80% of the value of your property.

PROS

  • The interest only payments can be lower than a standard mortgage payment
  • The terms are fully open which allows flexibility
  • The interest calculations are simple
  • The cost of borrowing is less than an unsecured line of credit

CONS

  • The interest rates are higher than conventional mortgages. For example 4.45%compared to a five-year fixed term mortgage at today’s rates of 2.89%
  • A charge is registered against your property so if you sell your property the line of credit will have to be paid in full
  • If you are carrying a long0term balance the cost can be expensive
  • There is no principal reduction in the amount you owe if you are only making interest payments
  • The rate will fluctuate based on changes in the prime lending rate
  • A line of credit is not portable so it can’t be moved to a new property and must be paid in full if you sell your current home

There are a few other facts that should be known about HELOCs.

  • The rate can be increased at any time
  • Your lender can demand the balance outstanding on your HELOC at any time
  • Your lender can raise or lower the credit limit at any time

A home equity line of credit can be a great product if it’s being used as intended as a revolving line of credit but it can also be risky as it uses up the equity in your home which for many is the only way to build wealth and savings for the future.

In a 2017 report, FCAC (Financial Consumer Agency of Canada) found home equity lines of credit may be putting some Canadians at risk of over-borrowing.

That report found most consumers do not repay their HELOC in full until they sell their home.

About 19% of respondents to the survey said they'd borrowed more than they intended and many didn’t know how much they owed.

If you have been carrying the balance on a HELOC for a long time without any principal reduction then it might be time to consider other mortgage options.



More Mortgage Matters articles

About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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