Dealing with debt in a time of rising interest rates

Rising rates and debt

A recent survey found 53% of Canadian mortgage borrowers are concerned about the prospect of higher monthly payments at renewal time.

Those in a variable rate or adjustable rate mortgage are already feeling the pinch with rising interest rates and increased payments and those who are currently in a lower rates fixed mortgage will be facing higher payments as their mortgages come up for renewal in the next few months.

Now, more than ever, is the time to take a review of your current debt picture along with your budget to see where you can cut back your cost of borrowing and potentially lower your overall monthly payments.

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.

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 that may be a last resort option but be aware, that 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 email [email protected] or, if you are ready to chat, you can book a time here on my calendar www.calendly.com/april-dunn.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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Busting myths about reverse mortgage safeguards

Reverse mortgage safety

There are many misconceptions surrounding reverse mortgages. There are only three reverse mortgage lenders in Canada along with an alternative lender option and all of them have safeguards in place to ensure that the equity in your property is kept safe and secure.

Here are the four most common misconceptions about reverse mortgages in Canada. Let’s bust those myths.

1. You will always retain title and ownership of your home
Just like a regular mortgage, your home is used to secure the loan – and the lenders will register a charge on the title of the property – you do not transfer home ownership to the lender.

2. Lending amounts are conservative
The reverse mortgage lenders will only lend up to 55% of the value of the home, while factoring in the homeowner's age, property type and property location. The older the client, the higher the loan amount they can qualify for. This is done so that the reverse mortgage never exceeds the value of the home.

3. Homes typically appreciate in value
The total value of your home is likely to appreciate over time -- especially if it is located in a major city. Meanwhile, only the interest on the borrowed amount accrues. Based on that differential, even a modest home appreciation allows for equity preservation. This is why over 99% of homeowners have money left over when their loan is repaid.

4. No Negative equity guarantee means loan can never be more than the sale price of the home
Many people think that if their home equity depreciates at the time of sale, they/their heirs will end up owing more than the house is worth. However, one of the lenders guarantees that if the home depreciates in value and the mortgage amount due is more than the gross proceeds from the sale of the property, the lender covers the difference between the sale price and the loan amount (as long as the property taxes and mortgage obligations are met and it does exclude administrative fees and the interest accumulated after the due date).

As your mortgage broker and along with the lenders I am focused on preserving your equity. That's why the lenders have built these safeguards into the reverse mortgage products to ensure that you will not be at risk of losing your home when accessing your home equity.

Please contact me to find out more about how a reverse mortgage is actually a great way to improve cash flow, while allowing you to stay in your home. Together we will compare the products of the reverse mortgage lenders and also review other possible mortgage options for you to accomplish your goals. We will help to find you the right solution while making the process as stress free as possible.

Please give me a call at 1-888-561-2679 or alternatively you can book a time on my calendar for a chat. www.calendly.com/april-dunn

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Advantages of getting a mortgage pre-approval

Lock in a mortgage rate

As the experts sound the alarm on potential further mortgage rate increases in the coming months, many homebuyers are feeling the pressure to act quickly and secure their dream homes before the rates increase.

An option gaining attention is the "mortgage rate hold." While it may offer some temporary security, it's essential to understand that a rate hold only lasts for a limited period, typically up to 120 days, and involves minimal scrutiny from the lender.

In truth, it's no guarantee you'll ultimately qualify for that specific rate or even secure mortgage financing at all.

So, what's the real solution? A full mortgage pre-approval with a rate hold—a substantially different offering compared to the rate hold from your regular financial institution.

The Importance of a mortgage pre-approval

The answer to whether a mortgage pre-approval is crucial is a resounding "yes!" It empowers you with the confidence to embark on your house-hunting journey. Unlike the basic rate hold, a pre-approval dives deep into your financial situation. Your income documents are reviewed, and the source of your down payment funds is verified. Any potential concerns are addressed head-on, and a strategic plan is devised to move forward confidently.

Benefits of getting pre-approved

Here are the key advantages of obtaining a mortgage pre-approval from a mortgage broker:

1. Know your price range: You'll establish a clear understanding of your price range before starting the house-hunting process, saving you time and effort.

2. Tailored home search: Armed with your pre-approval budget, your realtor can precisely pinpoint the right properties that match your financial capacity and preferences, streamlining your search.

3. Gain a competitive edge: In a competitive market, having a pre-approval may enable you to satisfy your financing condition and firm up your purchase contract faster.

4. No surprises: You'll have a comprehensive picture of your financial obligations, including down payment requirements, closing costs, and monthly mortgage payments.

5. Secure your interest rate: Take advantage of the opportunity to lock in your interest rate for up to four months, providing peace of mind amid predictions of rising rates.

Simplified pre-approval process

Here's a helpful tip. Getting a mortgage pre-approval doesn't have to be a complicated or time-consuming ordeal. Forget the notion of waiting for an in-person meeting at your financial institution. The process can easily be completed via secure online portals, telephone, and email, making it more convenient and efficient for you.

In fact, in many cases, I can complete your pre-approval in a single day, often even before your scheduled bank appointment.

Don't let the uncertainty of rising mortgage rates hinder your dream of owning a new home. Act now by securing a full mortgage pre-approval with a rate hold. With this powerful combination in hand, you'll be well-equipped to navigate the housing market confidently.

If you're considering a home purchase this year, don't hesitate to reach out and secure your rate hold with a full mortgage pre-approval.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.