Things change quickly in the world of mortgages. New products are introduced, rates change, the economy creates new opportunities. But whatever happens, you can bet your MST Agent is there to help you.
Here, you'll find some of the latest news stories that may have an impact on Canadian mortgages and housing markets. Please feel free to contact your Mortgage Specialist any time for an explanation of how your personal situation may be affected. Refinancing to pay off debt. - Sept. 2005
According to Benjamin Tal, Senior Economist at CIBC World Markets, Canadians' debt-to-income ratio reached an all-time high in 2004. Fortunately, this isn't as bad as it sounds because while incomes have remained relatively flat and debt has risen, Canadians' assets have been rising too--thanks in large part to rising real estate prices. And this has created a way for consumers to manage their increasing debt loads more affordably.
Refinancing mortgages to pay off debt has become extremely common. With house prices increasing and mortgage rates at historic lows, people are realizing they have a lot of equity sitting in their homes. At the same time, they're making comparatively high interest payments on car loans, lines of credit and credit cards. So refinancing allows them to pay off their high interest debt with the much lower rates of a mortgage.
How much lower? Today, consumer loans are fluctuating anywhere from Prime plus 2% to Prime plus 5%. With Prime currently at 4.25%, that means you'd be paying anywhere from 6.25-9.25%. Credit card interest rates range from a low of about 9% right up to 18-19%. And if it's a store credit card, it can be even higher. Now compare those rates to today's typical variable rate mortgage, which is currently at 3.5% (Prime minus .75%). You can even lock in for five years at about 4.5%, or 10 years for around 5%!
Credit card interest rates range from a low of about 9% right up to 18-19%.
Typically, the best time to refinance your mortgage for debt repayment is when it's coming due or you're selling one house and buying another. But depending on your situation, you may also save by breaking out of an existing mortgage.
As your MST Agent, I can do the math and show you how much you're going to save regardless of which route you choose. But just as important, I can also provide valuable advice about managing debt more effectively.
The goal of refinancing should be to save interest and get out of debt faster. That usually means increasing your mortgage payments to reflect the new amount you've added to the mortgage. Another consideration is what the debt is for. If it's for investment purposes such as paying off a renovation loan and a mortgage on a second property, then you're not really incurring more debt. But if you're refinancing to pay off car loans and ongoing credit card purchases, it's important to understand that you're going to have to change your spending habits or you'll be refinancing again before you know it. To help with this process, I like to point out how much refinancing can save you each month and suggest you use these extra funds to start an RRSP, make lump sum payments on your mortgage or establish a saving plan.
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