Is 2021 The Time for Debt Consolidation Using Your Home Equity in Ontario?

A lot of people are feeling the extra pressure as they face increasing bills during the pandemic. Is now the time to consider debt consolidation if you own a home in Ontario?

Do you know that the average household in Ontario owes around $124,700 to $157,700? Considering that the national average is just $114,400, it is clear that the average Ontarian has more financial responsibilities regarding debt. The good news is that applying for a debt consolidation loan is quite commonplace in Ontario especially for those who own a home.

What Is A Debt Consolidation Loan?

A debt consolidation loan is a loan that allows you to pay off multiple loans at once by using the funds from the loan. It combines multiple bills into a single monthly payment which is quite helpful for people who experienced a recent job loss, have unexpected expenses, have excessive credit card spending, or have too many credit cards to pay off. By getting a debt consolidation loan, financial obligations and multiple debts can be made easier to handle.

Debt Consolidation Benefits

Aside from making it easier for you to pay off multiple bills and debts, debt consolidation can improve your credit score. It is no secret that missing several monthly payments can drastically hurt your credit score. By being able to pay on time easier, your credit score can improve through consistent repayments. Once you have a better credit score, you may qualify for a lower interest rate for future loans. A small reduction in interest rate can easily translate to thousands of dollars in savings for big purchases. This will enable you to enjoy faster repayments and thus, make it more attainable for you to become debt-free. Above all, debt consolidation can bring you peace of mind with fewer bills to pay and seeing your finances improve little by little.

What Types of Debt Qualifies for Debt Consolidation?

Most lenders in Ontario have a limit to the type of debts that can be consolidated. Unsecured loans such as unpaid utility bills, credit card bills, and payday loans are usually qualified. Mortgages and car loans might be qualified under some lenders too, so be sure to inquire first.

Borrow Against Your Home Equity for Debt Consolidation

If you have a bad credit score, qualifying for a personal loan for consolidating debt might be challenging for you. The good news is that if you’re a homeowner in Ontario, you can use your home equity to access a big sum of cash to pay off your other loans. It works like a secured debt which means that the interest rate is friendlier to the wallet and the terms are slightly easier to qualify for. More so, getting a home equity loan for debt consolidation can allow you to benefit from the rising value of your property without having to sell your home. It’s a win!

Contact us as soon as possible if you need assistance with applying for a home equity loan for debt consolidation in Ontario. Our offices are open to serve you virtually as well.

 

How to Use Home Equity to Unlock Tax Deductions

Do you know that there is a way for the CRA or Canada Revenue Agency to allow something that would be akin to letting taxpayers deduct mortgage interest from their taxes just like what our American neighbours have down south?

How?

By using the Smith Maneuver, a way to deduct from taxes created by retired financial strategist Fraser Smith from Victoria, BC two decades ago. The Smith Maneuver goes around the fact that although mortgage interest is not tax deductible in Canada, loans on investment are.

How to Use the Smith Maneuver

By making use of the Smith Maneuver, a Canadian who has some substantial non-registered investments can use the funds from the investments to purchase a residence or pay off an existing mortgage. Now, you have to note that depending on your mortgage and whether it is closed or open, paying it off before the end of term may warrant prepayment penalties. You have to keep this in mind to assess whether using the Smith Maneuver would truly benefit you.

Let’s say that the numbers are in your favour. A few days after using the Smith Maneuver, you will be able to use your property as collateral when applying for a separate loan for investing purposes. Also keep in mind that a substitute of collateral may later be agreed to between you and the lender if you decide to move houses while this is ongoing. Once this is done, you can then reinvest funds from your loan into qualified, non-registered investments and deduct the interest on the investment loan from your taxes. Be sure to stay away from RRSPs and TFSAs as those are categorized as registered investments!

How the Smith Maneuver Can Benefit You

Strategizing using the Smith Maneuver allows you to use your home equity to invest and grow your assets over time because it lets you deduct from your taxes as you continue to grow your investments. It is making your money work for you and not the other way around while still keeping everything legal. Yes, this deduction is legal and permitted by the CRA though it would be best to ensure that you still keep a record of all tax deductions just so you have complete documentation in the event that your deductions are questioned.

When Would the Smith Maneuver May Not Work for You

The Smith Maneuver isn’t the answer everyone is hoping for. In the case of Canadians who take out mortgage loans to buy rental property, the high interest rates associated (because lenders usually add a premium to homes that are not occupied by the legal owners) may not make the maneuver worth it at all. It is therefore helpful to compare mortgage interest rates and really do your research to ensure that you won’t be at the losing end.

Just to add, under CRA rules, if you’re someone who does at least half of your work from home (in your home office), you may be able to deduct some or your home office’s cost from your taxes although note that this does not allow deductions of your actual mortgage. This is still a win, right?

Do you want to know more about how some loans can help you out? Contact the mortgage experts at Mortgage Central Nationwide or apply for your own home equity loan in minutes today!