It is no secret that many Canadian households are carrying massive consumer debt. If your household is one of these and you are looking for a way to finally get out from underneath this heavy burden, you may be considering refinancing your mortgage.
1.What is refinancing?
Simply put, refinancing is breaking your current mortgage to get a new one but with the addition that you use some of the equity in your home to get a higher mortgage. The extra cash you receive from the equity in your home may be used for any purpose you choose and many homeowners use it to pay off higher interest debts so that they can get out of debt faster and lower their monthly payments.
2. What are the advantages of refinancing?
The biggest advantage of refinancing is that you can get money you need fairly easily as long as you have equity in your home. This option even works for those with a poor credit history.
Because mortgage rates are so low right now, you can also usually get a pretty good rate which will be much lower than what you are likely paying on those high-interest credit cards. This means that if you are using refinancing as a strategy to pay off debt, it is possible not only to pay off your debt faster but also to lower your payments so that you have more cash left over at the end of the month.
3. What are the disadvantages of refinancing?
Depending on when your mortgage is up for renewal, a mortgage refinance could involve having to pay a penalty for breaking the first one. Before you decide to refinance, therefore you should find out how much this penalty will be and determine whether the savings will be worth it. Your mortgage broker can help you determine whether it would be more advantageous for you to refinance or to get a second mortgage or home equity line of credit which are other tools for accessing the equity in your home.
The biggest potential drawback of refinancing in order to pay off debt is the possibility that you will go back into consumer debt. If you do not change your spending habits then you could end up in an even worse situation than you were in before.
Refinancing is a powerful tool and can be a very smart debt reduction strategy, but only if you commit to staying out of debt. To learn more about this and other mortgage tools, give Akal Mortgages a call today at (416)-621-1300.
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