Home Mortgage Debt
Reduce your debt load With Home Mortgage Refinancing
What volume of debt are you carrying right now? If you are like most Canadians, you have debts that exceed your annual net income. Getting a handle on all of this debt can put a lot of pressure on today's households. Home mortgage refinancing is a possible solution to the debt load problem.
Where is all this debt come from?
The increase in debt loads for Canadian families have been widely reported. According to Statistics Canada, the median debt load for Canadian households grew 38% between 1999 and 2005.
Much of this increase attributed to higher costs for home purchases and the need to take out a mortgage. But there are other costs involved. Line of credit debt doubled in the same six-year period, while vehicle loans increased by over 40%, and credit card debt jumped 58%.
Households have typically cut back on savings to finance some of their debts, a trend that has some economists worried. With no savings to fall back on and heavy debt load, an increase in interest rates can be devastating. Most experts advise families with high debt relative to their income to settle on a budget and start saving everywhere they can.
Can Home Mortgage Refinancing Help?
Home mortgage refinancing is not for everyone, but for many people it may make sense.
With home mortgage refinancing, you pay your existing mortgage to switch to one with a lower rate. Cash-out refinance allows you to borrow more than you currently owe on your mortgage, which gives you some extra money for miscellaneous expenses debts, home renovations or university tuition.
There are costs associated with home mortgage refinancing, so you should evaluate them carefully before deciding to refinance. The fees are the same as you paid for your original mortgage. Depending on the terms of your first mortgage, there may also be a fee to pay it off early.
Is home mortgage refinancing a good strategy? It depends much to interest charged both current market conditions and those on the debt you have. Refinancing may be the right decision if you will:
• Save money on your mortgage. If your main concern is to lower your monthly mortgage payments, refinancing can be an option depending on your situation. If you plan to move within the next 2-3 years, home mortgage refinancing would not be wise – you'll be moving before you realize any savings from the lower rate. If you plan to stay, look for a difference of at least 2% between your current interest mortgage rate and the market rate. Typical want something smaller than a 2% difference not save you much. Refinancing to switch between a fixed and variable rate can also save you money.
• Pay your mortgage faster. Switching from a long-term to short-term mortgage rates will help you to pay more of the major languages.
• Consolidate debt. Cash-out refinance can provide you with a loan to a much lower rate than the rates on your outstanding debt. You can pay your debt and save a significant amount in interest.
For advice on whether home mortgage refinancing is right for you, consult a mortgage professional.
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