Posted By FP on December 15, 2010
It’s December, the busiest season of the year. Lots of shopping, cookies to bake, parties to plan for and to attend. For many though, pesky debt responsibilities can dampen their planning and holiday enjoyment. Some might not worry about their debts, thinking they can always get their financial house in order after the holiday.
If you are concerned about your debt obligations, consider adding one more task to your pre-holiday season to-do list. Check if you can use your home equity to consolidate your high-interest debt into a new or existing mortgage.
You can lower your payments, save on interest and can power down your debt faster. In almost every case, you’re better off holding your debt in a mortgage than any other lending vehicle. Why? Because Canadian homeowners can benefit from mortgage rates that are still among the lowest in decades, and as announced in the news, this low interest will not stay this low forever. It’s important to act now, while you have the opportunity.
If you worry about penalties that might occur if you break your current mortgage, then take some time and have your situation assessed. There’s a good chance that the savings each month will far outweigh any penalties.
Let’s consider an example: your current mortgage is $155,000 at a 5.5% and you have a monthly payment of $946. In addition to your mortgage you have a can loan of $20,000 and credit cards maxed out at $20,000. You are paying currently on the car loan and credit cards a monthly payment of $920 this totals to $1,866 a month. Often people are stressed when their unsecured debt payment is close or higher than their mortgage payment.
Solution for this situation could be to get a new mortgage of $202,000 to cover the original $155,000 and the $40,000 in credit cards and car loan, and $7,000 penalty for breaking your mortgage contract. Your new mortgage is at 3.59% and you now have a much lower overall monthly payment of $1,018.
Just consolidating your car loan and credit car loan into a new mortgage with a lower interest can significantly reduce your monthly payments. With this new scenario, monthly payments are $848 less each month, a great improvement in cash flow! But please don’t go out and blow the money! Take at least half or $400 of that cash flow into your monthly mortgage payment and you can reduce your amortization from 25 years to 15.
Today Canadians can call themselves a fortunate generation of homeowners. We can benefit from low mortgage rates to enjoy our lives and out homes – and to manage debt wisely.
Home equity debt consolidation is a golden opportunity, especially if you’re concerned the holiday season might further add to your debt burden. Aside from the debt stress relief and interest savings, restructuring your debt with a debt elimination plan, can also give you a fresh start to a responsible financial housekeeping.
Create a plan for this year’s holiday spending; set a budget and work within that amount. If a debt consolidation exercise gives you new financial comfort, you’ll want to maintain that ease by living within your means during and after the holidays.
Homeowners are recognizing that they need to get smart about debt and get out of debt. Canadians carry huge debt loads, as for the latest updates every on every $100 earned Canadians own $147. This is ridiculous to consider. Many Canadians pay a shocking amount of money on their high-interest debt, whether its credit cards, unsecured loans, tax bills. It all adds up. But if you have equity in your home, there’s no good reason to be carrying high-interest debt.
Once you consolidate your unsecured high interest debts, I would suggest closing your credit cards and having only one to use when necessary, and learn to pay for everything with cash. You can be debt free!