Living with debt can be difficult. It adds extra stress to your life and your finances. This may be why many Canadians have been using their resources to pay down their credit card debt during the pandemic. According to statistics, unpaid credit card balances dropped by an average of 18 percent in the last 12 months.
If you’ve been looking for some ways to get rid of your debt, then refinancing your mortgage might work for you.
What is mortgage refinancing?
Mortgage refinancing involves paying off your current mortgage and replacing it with a new one. The process is the same as most other mortgage solutions. You’ll have to apply for a refinance, and lenders will take into account various factors, such as your credit score, income, assets, and how much you want to borrow. With a cash-out refinancing, you can turn your equity into cash. It’s also referred to as a debt consolidation refinance.
It’s important to note that there may be a few additional fees that you might have to pay for a refinance, including a penalty fee for paying off your mortgage early.
Pros of Mortgage Refinance
The cash you get back from refinancing your mortgage can be used to pay down your credit card balances. This will help to get you debt-free faster.
Paying off your credit card debt can also save you money in interest over time. Most credit cards charge up to 30 percent interest. Your mortgage rate will be around 5 or 6 percent.
Eliminating your credit card debt can also boost your credit score. This will be an advantage if you need to take out a loan in the future, such as for a new vehicle or to get a personal line of credit.
Cons of Mortgage Refinance
While paying off your debt with a refinance can be an easy way to eliminate it, you’ll also need to adjust your spending habits so you don’t end up in credit card debt again.
Refinancing with a cash-back option means that you’ll be tapping into the equity you’ve built up in your home. The equity you have in your home will be reduced as a result.
Your home is collateral that a lender can take if you default on your loan. It is vital that you are clear about the terms of the refinance mortgage. You’ll also need to be confident that you’ll be able to meet those terms and pay the mortgage off.
If you’re not sure whether a cash-out refinance is a good fit for you, contact a mortgage broker to discuss it. They’ll be able to offer you advice on what lenders are looking for, what they are willing to offer, and whether you’ll be better off in the long run.
If you are interested in learning more about mortgage refinancing options in Ontario, call Northwood Mortgage™ at 888-492-3690 or contact us here.