Use your home equity to reduce your debt.
If you are struggling to pay off high-interest debt, such as credit card debt, auto loans and personal lines of credit, you can consolidate them all into a low-rate mortgage loan using the equity in your property.
Debt Consolidation Options
Homeowners have several ways to consolidate debt into their mortgage.
- This method will require you to break your mortgage term early and effectively change the terms of your current mortgage.
- You can borrow up to 80% of your home’s appraised value (Loan-to-Value ratio or LTV).
- Refinance rates are typically less than 4%.
- You will incur a penalty for breaking the contract, which will depend on whether the current loan is a variable mortgage or a fixed mortgage.
Home Equity Line of Credit (HELOC)
- A HELOC is a revolving amount of credit backed by your home.
- The more equity you have in your home, the more you can borrow with a HELOC.
- Many private lenders allow you to borrow up to 80% of your home’s value, minus the balance remaining on your mortgage.
- HELOC rates are usually prime + 0.5%, if you have a good credit score, can show proof of adequate income and hold at least 20% equity in your home.
- A second mortgage is an additional loan secured by the equity of your home that’s already mortgaged.
- You can borrow up to 80% of the appraised value of your home, minus the balance remaining on your first mortgage.
- Second mortgages always come with higher interest rates than first mortgages, but still usually lower than rates on credit cards and personal lines of credit.
Reverse mortgage loan
- Reverse mortgages are available to Canadian homeowners over 55 years old.
- You can cash in up to 55% the equity in your home and use the money for whatever you need.
- The amount you can borrow is based on your age, the location of your home and the value of your home, rather than your income or credit score.
- The interest rate is usually higher than with a refinance mortgage, but still much lower than other debt such as credit cards, payday loans and personal loans.
If consolidating makes sense to your financial situation, contact me today to review your options for using your home to reduce your debt and start saving money.