Debt consolidation has many benefits, one of which is avoiding paying huge interest rates. With debt consolidation, paying debt is made much easier because instead of having to remember paying a few bills each month, you’ll only have to remember paying one. With these said, is it worth it to refinance mortgage for you to consolidate debt?
Getting Out of Debt
Many Canadians are weighed down by debt. Almost everyone who isn’t from a privileged background has car payment loans, credit card debts, student loans, and many other kinds of debts. It is easy to forget one or to get buried in paying just the interest in an effort to stay afloat. The problem is, handling multiple high-interest loans is tricky and if your plan is to just keep paying the interest, the loan will still get larger over the course of a year. Debt consolidation is the way to go.
For a lot of people, debt consolidation means taking out another loan. Most debt consolidations loans still come with high interest although a bit lower than say, credit card interest. Homeowners have a chance to save up on interest by applying for secured home loans such as a home equity line of credit (a HELOC) or going for a mortgage refinance for debt consolidation.
How Does Debt Consolidation Work?
So, a quick backgrounder. Debt consolidation is a way of combining multiple high-interest loans into a single loan that should be easier to pay for the debtor. The debt consolidation loan is taken to pay all remaining balances on multiple loans, effectively closing the other debts.
The main advantages of debt consolidation are that the borrower gets to choose a single loan with a lower interest than having to deal with multiple debts and bills, and, saving a lot of time and money in the process if properly planned out and executed. In other words, debt consolidation is a good way to pay debt for individuals who have a reliable and steady income and want to make their monthly debt payments more manageable and affordable.
Is It Worth It to Refinance Mortgage for Debt Consolidation?
Refinancing mortgage for debt consolidation is a way to get a lower interest payment plan. Most credit card debts charge 15-30% interest per month, but a mortgage usually just charge around 5%. Even considering all the fees the process of getting a mortgage refinance will entail, it is still possible to save thousands of dollars this way. Note that a debt consolidation refinance typically involves resetting an existing mortgage at a lower rate at the present time. This frees up some equity or the homeowner can pull out some equity to pay other debts. Closing costs will usually be at around 1-5% of the total loan but this amount is still low if a debtor can end up saving between 10-20% in interest per month.
Is it worth it to refinance mortgage for debt consolidation? The short answer is YES! If you want a more detailed response or interested to know how this applies to your specific situation, do not hesitate to contact us. At Mortgage Central Canada, we’d be happy to assess how debt consolidation can help get you out of debt.