As interest rates fall, talks of refinancing becomes more and more prominent. There are several reasons you may want to tap into your equity. You may be looking to consolidate your existing unsecured debt, potentially purchase an investment property or pull out equity to renovate your current home. Consulting with Mortgage Broker with help guide you in the right direction.
In todays blog post, I will be focusing on refinancing your home in order to consolidate debt. The first question people ask, is how much can I borrow? Generally speaking, you can borrow up to 80% of the market value of your home. For example, if your home value is $1,000,000 you can access up to $800,000. If your current mortgage is $500,000, you can then withdraw up to $300,000 on top of your existing mortgage assuming full qualifications are met.
If you are refinancing to consolidate debt, it's important to look at the big picture. There are added costs to consider when refinancing your home. Some added costs to be aware of could be:
-Existing mortgage penalties
Assuming there is enough room in your equity, these costs can be rolled into your mortgage with your debts so there are no 'out of pocket' costs.
Consolidating your debt into your mortgage can be hugely beneficial if done correctly. First off, it is key to look at all of your existing debts, outline the balances, minimum monthly payments, along with each debts interest rate. Many unsecured debts are sitting upwards of 18% interest. You can dramatically decrease your monthly costs just based on interest alone. Secondly, with your Mortgage Broker you will outline your total costs to be added into the mortgage. ie. closing costs mentioned above, debts to be paid out and existing mortgage to be paid. Once you have broken down the costs, versus the savings you will feel comfortable knowing if refinancing is the right choice for you!
When doing a debt consolidation its important to close out the accounts you have paid off and leave one open for emergency's. This will ensure your debt load stays low outside of your mortgage. If possible, I also recommend staying on track with your existing amortization. For example, if you have 20 years remaining on your current mortgage, but you need to add $50,000 for your debts to be paid out, yes your payment will increase but you will no longer have the minimum payment to make on the unsecured debt so your monthly costs as a whole may still decrease. Of course this is case by case basis and if you need to extend your amortization that is absolutely possible as well.
If you have any questions about refinancing your home, give me a call and lets chat about YOUR plans and goals!