Everyone dreams of the day when their debts are paid off and their financial worries are put to bed. Whether that is a short or long term plan, a good mortgage strategy can help!
If you have accumulated sufficient equity in your home, you may be able to put your finances on much better footing by consolidating higher interest rate debts into the mortgage. This does not mean you will be paying off your mortgage slower, indeed, the money you save by reducing your interest expense will give you the option to pay off your mortgage faster! and/or set other advantageous plans in motion.
Residential mortgage loans are the most secure loans in Canada. As a result, the interest rates available to home owners with good credit scores are the lowest in the country. This creates the opportunity to consolidate higher interest debts like credit cards into a much lower interest mortgage loan.
Mortgage loans can also be amortized over a longer period of time than other debts. Consequently, rolling shorter term debts into a mortgage can bring a dramatic reduction in minimum required payments, which can be a great releif when debt service payments are overwhelming the household budget. Finally, most mortgage lenders allow lump sum and regular pre-payments on a schedule that suits your convenience.
A good refinance strategy must factor in the effect of penalties, closing costs, available mortgage rates, and other factors, which is why we have developed our "Refinance Analysis Worksheet" to clarify the potential costs and savings of refinancing over the remaining term of your mortgage.
If you do decide to consolidate debts into your mortgage, don’t forget to use some of your newly freed up cash flow to start a proactive savings/investment program to finance your future major purchases and avoid slipping back into the debt cycle trap again.