subject: Debt Consolidation in Canada - Home Equity Loan Mortgage [print this page] Debt Consolidation in Canada - Home Equity Loan Mortgage
Despite mortgage rates hitting historic lows over the past year, interest rates on credit cards and other forms of debt and overdrafts have not declined. In fact, some department stores cards can charge as much as 29.9% per year! If you only make minimum payments on credit cards or other high interest debt, you can end up paying a lot of interest every month with very little of your payment going towards the actual principal. A home equity loan mortgage could be the solution to your cash flow and financial problems.
If you own a home in Canada, it has probably increased in market value over time, including this past year of economic recovery. Equity in your home is the difference between the appraised value of your home and the debt (mortgage) you have outstanding. Therefore, if you have been paying down your mortgage and your home has gone up in value, you will have equity in your home.
A home equity loan mortgage or line of credit means that you can borrow against that equity at a low interest rate. The debt is a secured form of debt, like a mortgage, that is tied to the value of your home. By using the low interest loan to pay high interest debt, like credit cards, you could save thousands of dollars in interest every year. You may also improve your credit score. By paying down cards and other expensive loans, you can also free up cash flow every month - so you don't go into debt further. The key, of course, is to avoid running up the cards and debt again.
Another option is to refinance your home at a low interest rate. If your home has increased in value, you can secure a new, higher amount for your mortgage. The advantage here is you will get a low interest rate for your mortgage and you can use the additional money you financed to pay off high interest debt. If you have cash flow issues every month, you will be able to lower your total monthly payments - with more cash going towards the mortgage payment but less going to credit card or other debts (since these will be paid). The total amount you can save in interest over a year can equal hundreds or even thousands, depending on the high interest debt you carry.
Interest rates are expected to rise over the next year. Now is the perfect time to secure your home equity loan mortgage at historically low rates.
