Time to Consolidate Your Debt

Securing equity in your home offers options for consolidating your debt that will save you money on interest and may even increase your cash flow. Reducing debt is always a smart decision, especially if you have large amounts of unsecured or high-interest debt. Fortunately, having equity in your home can allow you to consolidate or restructure your debt through a home-equity loan or through a second mortgage.

With the second mortgage option, you are able to use up to 90% of your home’s current market value to secure either another mortgage. The amount you are able to borrow for a second mortgage is tied to the amount of equity that you currently possess. If, for instance, you have 45% equity you can generally borrow as much as 40% of that equity. (Note: generally, you will not be able to borrow the full amount of the equity you have built.)

If your loan is up for maturity, another option is to take out a home equity loan. With a home equity loan, you can use up to 75% of your home’s current market value. With a home equity loan, you may choose to either take out a loan for 75% instead of the full mortgage, or you may choose to keep the terms of your current mortgage and take on an additional line of credit.

For those whose mortgage has not reached maturity, another possibility may be to keep your current mortgage rate and then borrow more money at the current interest rate. What will result is what is referred to as a weighted average. The availability of this type of loan is going to be restricted and will depend on the financial institution.

As with any loan, especially home loans, careful consideration should be given to the options and their impact on your current and financial solvency. CompareMyRates.ca offers a variety of tools and calculators to help you assess the options.