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.