Although low interest rates and a vigorous housing market continue to be the norm, Canadians are still saddled with the burden of high debt loads. According to recent stats, the ratio of debt to disposable income rose to 167.3% by the end of 2016. This means that Canadians owe $1.67 for every dollar of disposable income, up from $1.66 in 2015.

The rapid increase in housing values over the past 2-3 years or so has created huge equity in most cases on a property purchase prior to, say,  2014. That appreciation has now made re-financing both feasible and sensible with a goal of taking out accumulated high-interest debt and replacing with today’s historically low mortgage interest rates.

If you have equity in your home yet can’t seem to manage your debt payments, re-financing may be an option. With credit card interest rates often pushing 20% or more,and  unsecured LOCs (Lines of credit) in the 7%+ range and higher, paying off high interest  debts makes good sense.

With a re-finance, specifically you are increasing the amount of your mortgage to pay off high-interest debt. Your actual new mortgage payment may or may not increase, depending on a number of factors.  For example, you may incur a penalty to break your existing mortgage if you are refinancing mid-term, but your overall monthly payments should decrease since you would be paying off the re-financed debt at a much lower interest rate. This in turn should save you thousands of dollars in interest in the long run.

Despite record low interest rates, some new home buyers are finding difficulties qualifying for a mortgage due to new Federal Government rule changes announced late last year, such as down payments, and amortization periods. Without at least 20% downpayment, for example, CMHC mortgage insurance would be required and the conditions under which mortgage financing could be arranged if the purchasers do not qualify for CMHC coverage (because of low credit scores for example) would make it difficult to impossible. These changes have also affected existing mortgage holders who may want to refinance to get a lower rate, so bearing in mind that in a re-financing deal, the maximum financed amount cannot exceed 80%, this has to be taken into account. So ensure that at least you are getting rid of the credit cards bearing the highest interest rate.

Some reasons to consider a refinance:

  • Decrease your overall monthly debt payments by using your equity to pay off those high-interest credit cards or unsecured loans, which can help you better manage your budget.
  • Refinance to purchase another property. Using the existing equity in your home can be a great way to buy a rental property, for example, which, if done right, can also make the interest you pay tax deductible.
  • You could also take out some of the equity for investment purposes.
  • You may want to refinance to renovate, e.g. new bathroom/kitchen installation, landscaping, swimming pool/spa installation etc.
  • Helping your children to purchase their first home. In today’s tough housing market, many millennials  are precluded from purchasing their first home because of insufficient down payment.

This is where a Mortgage Broker can help out. Since the banks usually have just one product to sell – namely their own – this may prove difficult as banks will not usually undertake any transaction involving risk. A Mortgage Broker, on the other hand, works with as many as 40 or more lenders from coast to coast, thus offering clients flexibility and a host of choices to meet their requirements. If I can be of help in this regard, please do not hesitate to call me – 416-315-1787.