The idea behind debt consolidation is simple: You take on a single, big loan to pay off all or most of your other, smaller liabilities.

Usually, there are three big reasons to do it. First, focusing on a single monthly debt payment is much easier than chasing due dates for a multitude of creditors. Second, you might be able to get a lower interest rate on your debt consolidation loan than you were paying on several of your smaller loans. Third, especially if you were able to get a lower rate, the monthly debt payment on your consolidated loan may be smaller than the sum of what you were paying before to your many creditors.

How to consolidate debt, though, is anything but straightforward. Some options involve low-interest rates but the repayment period is so long that you may end up paying more interest on your debt overall. But math isn’t the only consideration. Psychology matters, too. Sometimes, a smaller payment and a flexible repayment schedule just enable borrowers to run up their credit cards all over again.

So what’s the best way to untangle your debts? Global News asked Scott Hannah, head of the B.C.-based Credit Counselling Society and Sheila Walkington, co-founder and CFO of Money Coaches Canada, to order debt consolidation options from best to worst. Their ranking was identical:

1. Term loans

The nice thing about term or personal loans is that they have an end date that isn’t too far off and, if you chose a fixed interest rate, predictable and generally mandatory monthly payments.

“That is why we recommend them,” Hannah said.

Term loans may come with interest rates slightly higher than those available through a line of credit or a mortgage. And because you have to extinguish the loan within a set amount of time, your debt repayments are also quite a bit higher than what you’d usually get away with using a line of credit.

But the more structured nature of term loans generally helps people stay on track, Hannah said. And a term loan from a bank or other mainstream lender still comes with lower interest rates than the 20% charge you’d typically get on a credit card.

Another advantage of term loans is that there are usually no prepayment penalties, Walkington noted.

If you qualify for a loan with a payment you can manage and have a fairly stable financial situation, this is the way to go, Hannah said.

2. Unsecured lines of credit

These days, unsecured lines of credit come with relatively low-interest rates of 5-8%.

They are “a good way to consolidate debt without locking yourself into a high monthly payment,” Walkington said via email. At the same time, “the flexibility to pay more than the minimum makes it easy to adjust your payments to your cash flow.’

But those traits also make lines of credit a potential slippery slope that leads many borrowers into deeper debt, both Hannah and Walkington told Global News.

“Without discipline, a line of credit may be difficult to pay down and easy to run up again,” Walkington said.

Also, the interest rate on a line of credit is variable. This means that both your minimum payment amounts and overall interest costs may rise if interest rates increase, as they have since July 2017.

3. Secured lines of credit (HELOCs)

Home Equity Lines of Credit, or HELOCs, are secured by your house and come with even lower rates (think 4.5 percent). Another perk is that your ability to borrow is linked to your home equity, so that your credit limit goes up as you pay down the mortgage, potentially freeing up room to consolidate higher-rate debt.

Other than that, HELOCs have all the pros and cons of their unsecured cousins, including variable interest rates.

Still, when it comes to psychological debt traps, HELOCs can be even more treacherous, according to Walkington and Hannah.

That’s because making only minimum payments on your HELOC comes with “the double whammy of not only not paying off the line of credit, but negating any progress on paying down your mortgage if one keeps running up the HELOC,” Walkington said.

4. Mortgage refinancing

By folding your high-interest debt into a mortgage you may be able to lock in an interest rate as low as 3.39 percent, according to a financial product comparison site.

With a fixed-rate and a low monthly payment, this can be a “‘get out of jail free’ opportunity to consolidate debt,” Walkington said.

But the math may not be favourable as the low interest rate suggests, both Walkington and Hannah noted.

If you have, say, $80,000 in credit card debt and are spreading it out over 20 or 25 years, Hannah said, you have to ask yourself, “how much interest am I going to have to pay on that debt over that amount of time?”

The answer may be: More than if you had not consolidated your liabilities.

Mortgage refinancing also comes with fees and potential penalties for pre-paying the debt before the end of the term.

5. Second mortgage

A second mortgage is a loan backed by a home that is already mortgaged. You’ll be paying a higher interest rate on a second mortgage because your lender is second in line on your property’s title. If you default, it’s the lender on your first mortgage that will get first dibs on your property.

Second mortgages, though, can still be a way to turn multiple debt charges into a single, lower payment. They are “a last resort,” Walkington said.

But taking out a second mortgage means committing to additional fixed costs for the long term, Hannah said. And even if you choose a fixed interest rate, those costs are likely to rise at renewal if interest rates keep going up.

And if you run into a snag, a second mortgage may be difficult to refinance, Walkington said.

6. Getting a co-signer on a debt loan or line of credit

Adding a friend or relative to your debt-consolidation loan can help you access credit or a lower interest rate if you have a bruised credit record or little credit history. This, though, puts your family and friends at risk if you default on your payment, which can put a significant strain on relationships, both Hannah and Walkington noted.

And co-signers often don’t realize that adding themselves to your loan will limit their own ability to borrow, Hannah said. Lenders will count your debt as their debt when they apply for credit.

In most cases, Hannah said, “it’s best to keep friends and family out of it.”

If you want to discuss home equity loan options to consolidate your debts, reach out to Private Mortgage Source now at 647-479-9849.

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Tracy, a 61-year-old pensioner, recently sold her townhouse to help fund her retirement. Knowing that she needed an investment that produced a stable and predictable income source, a friend of hers suggested she try private lending.

This friend knows a homeowner whose home is worth $3.2-million with a $1-million mortgage and who is looking to borrow $200,000. This homeowner is willing to pay 7% per year for a term of three years.

Tracy is considering the deal because 7% interest is four times what her bank is offering on their term deposits. She feels there would be some protection because a lien would be registered against the borrower’s home, thus eliminating the risk of the property being sold or re-financed.

Before agreeing to these terms, Tracy wrote to me for my opinion.

Cash flow and rates

To make this decision, Tracy requires a lot more information. She should take the same precautions that a bank would and collect personal and financial information on the borrowers.

My main concern would be their cash flow as they have an existing $1-million mortgage. I would want to verify their employment, salaries, credit scores and their plan with respect to paying back the loan.

I also need to know how the funds are going to be used. If the money is being borrowed to service existing debt, that’s a concern as it likely means there is a cash-flow issue.

Another concern is that the 7 per-cent interest rate seems low. Rates charged are risk-based, and private loans are often risky. Any borrower dealing with a private lender is usually doing so because they have exhausted all other options.

Their parents, banks, credit unions, and secondary or alternative lenders have likely turned them down or were willing to lend money, but at a much higher rate than 7%.

Often, borrowers are turned down for good reason, likely because they can’t afford or shouldn’t be borrowing more money. Due to the increased risk, most private-lending deals pay 10-20 per-cent interest.

I also think the term is too long. I wouldn’t be comfortable with a three-year deal.

I would only consider a one-year deal, which could be renewed but at the discretion of the lender.

Know the reasons

For me to consider lending, I would need to know the reason their bank turned them down. Maybe it was simply due to a small technicality, which had nothing to do with their creditworthiness or ability to service or pay back the loan.

I may consider lending the funds in this case, or if, for example, they are borrowing the funds to simply fix up their home before selling it. Or maybe they just need a year to sort out their financial affairs before being able to qualify for a loan with a traditional lender.

What a private lender wants to avoid is a situation where the borrower can no longer make payments or pay out the loan by the end of the term. If that were to happen, then the lender would have to force the sale of the property, which is expensive and time-consuming.

In the end, Tracy decided against private lending. She wasn’t comfortable lending $200,000 as it made up 40% of the proceeds of the sale of her townhouse. She didn’t want to risk having that much of her retirement tied up in one investment.

My recommendation was that she lend no more than 10% of the sale proceeds.

Tracy instead decided to invest in a mortgage fund where professional underwriters complete the due diligence on the borrowers, something Tracy wasn’t willing or able to do herself.

The rate of return is approximately the same and the fund doesn’t tie up her money for three years.

Want to become a private lender? Contact Private Mortgage Source and let’s discuss private lending options that minimize your risk will giving maximum month over month returns – contact info@privatemortgagesource.com.

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The self-employed are among the growing number of Canadians turning to private lenders in order to obtain a mortgage.

While many prospective homeowners are driven to alternate lenders because of government-mandated stress tests and poor credit scores, the self-employed often have additional burdens to overcome in proving their income.

“There’s more and more people seeking private loans than ever before and that’s a direct result of government making it more and more difficult to qualify,” says Dan Caird, a mortgage agent with Dominion Lending Centres.

According to the Bank of Canada, private lenders have doubled their share of the mortgage market in Greater Toronto since 2015, accounting for eight per cent of mortgages in 2018.

These lenders are less concerned about income and more focused on the property’s value in case they have to foreclose. The tradeoff is higher interest rates and fees.

Still, the option can be helpful for the self-employed who expense as much as they can in order to reduce their taxable income and who have a strategy to beef up their credit score with a goal of returning to a traditional lender.

Caird said it’s usually more financially advantageous to “expense the heck out your business” and show less income.

“Sure you’re going to pay a half a per cent, a per cent, sometimes two to three per cent 1/8more 3/8 on your mortgage but …they usually end up coming out ahead by claiming less income and just paying a bit more on the mortgage,” he said in an interview.

However, the writeoffs make it harder for lenders to obtain the 35 to 44 per cent debt-to-income ratio sought by traditional lenders.

Proving a sufficient track record of income to qualify for a mortgage can be the biggest challenge for people who work for themselves.

“Assuming a self-employed borrower had great credit and ample equity, we used to be able to simply state their income to the bank and show a notice of assessment to prove no taxes owing,” said Robert McLister, found of mortgage news website RateSpy.com

“Those days are long gone.”

The government now wants verifiable proof of true earnings while the stress test makes the hurdle even higher by requiring almost 20 per cent more provable income to qualify for the same mortgage available in 2017, he said.

That has pushed more people to alternate lenders.

“Self-employed mortgages without traditional proof of income are a different animal from your cookie cutter AAA bank mortgage,” McLister added.

The Canada Mortgage and Housing Corp. is trying to ease the paperwork required to obtain mortgage loan insurance, said Carla Staresina, vice-president risk management, strategy and products.

It introduced changes last October that suggest additional factors lenders could consider if the borrower has been operating their business for less than two years, including having sufficient cash reserves, predictable earnings, acquisition of an established business and previous training and education. It is also encouraging acceptance of a broader ranger of documents.

“Our aspiration really is to make sure everyone in Canada has a home they can afford and that meets their needs,” Staresina said from Ottawa.

“We know self-employed Canadians make up about 15 per cent of Canada’s labour force and so we want to make sure that any difficulty that they have in qualifying for a mortgage is mitigated and that we’ve got some options for them.”

McLister said the program will help “at the margins,” particularly those who recently started a business or bought an established operation.

Caird said there’s been some other steps in the right direction. He pointed to a new product from the Bank of Nova Scotia that allows incorporated companies to use retained earnings in the business to help applicants qualify.

Genworth Canada and Canada Guaranty also have programs to help self-employed borrowers, but require the business be open for at least two years.

The mortgage broker’s task is to convince lenders that the borrower is a good credit risk by adding back specific deducted expenses to net income to improve the debt-to-income calculation, said Caird.

While having a sound credit history is very helpful, mortgages can still be obtained for those with less-than-stellar records, for a cost.

Three essentials for borrowers are to have up-to-date taxes, be organized and consult a mortgage broker long before the mortgage is required.

“If your taxes aren’t up to date it’s going to be next to impossible to get a lender to give you a mortgage at any sort of reasonable rate or term.”

Let Private Mortgage Source be your first choice when seeking a mortgage as a self-employed person. Contact us for more details.

SOURCE

In 2018, Twenty percent of refinancing for mortgage deals in the second quarter were funded by private lenders, a 67 percent jump from the first quarter of 2016, according to a recent report Toronto based brokerage Realosophy and property data provider Teranet.

Purchasing homes and paying off mortgages are getting harder in Canada’s biggest city due to a combination of rising interest rates, higher home prices and tougher standards to qualify for a mortgage. The new rules require borrowers to prove they can make payments at higher rates and apply to new mortgages as well as refinancings or transfers to a new bank

The changes are a boost to private lenders, which are willing to take on riskier financing arrangements than traditional lenders. In turn, they charge higher interest rates, the report said. The share of mortgages financed by private lenders has increased from a low of 12 per cent in 2016 to 20 per cent in the second quarter of 2018.

Most of these lenders are mortgage brokers who have set up mortgage investment corporations to raise money for lending, John Pasalis, president of Realosophy said in an email.

Total private mortgage volume jumped to $1.5 billion in the second quarter, from $920 million in the first quarter of 2016, the report said. Almost half of private lending activity during that period was on detached homes that were refinanced; the next highest segment was for condo refinancing.

Generation Xers, or people in their 30s and 40s, were the largest group of consumers turning to private lenders, accounting for 42 per cent of all transactions, according to the report. A portion of this increase may be driven by owners who prefer to do major renovations to existing homes rather than moving to a bigger house, the report said. Private lenders are often more willing than banks to provide construction financing.

Private Mortgage Source provides private mortgage options for Canadians looking private mortgages whether it is for a residential or commercial property, we can help. Call us at 1-855-808-6615 and speak to a specialist about private mortgage options.

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Canadian homebuyers can once again be found in Florida, Arizona, California or wherever you might get your fix of warm and sunny weather south of the border.

“We have definitely seen an increase in Canadian buyers,” said James W. Bates, a real estate specialist at Premier Sotheby’s International Realty in Naples, Fla.

Bates used to get 80 to 90 per cent of his business from wealthy, sun-starved Canadians snapping up vacation homes. But the share of his Canuck clients dropped precipitously — down to around 40 per cent — in 2015 and 2016, when the Canadian dollar slipped to around US 75 cents after years of holding at close to — or above — parity.

Now, though, Canadians are back to making up 60 per cent of Bates’ customers.

Numbers from the U.S.-based National Association of Realtors show a similar trend nationwide. By 2016, the value of U.S. residential property bought by Canadians had plunged to just over half of the US$17 billion ($17.5 billion) that Canucks spent in late 2009 and early 2010, when the loonie was firmly above 0.90 cents US and the subprime mortgage crisis had pushed U.S. home prices to record lows.

But Canadians’ retreat from the U.S. seems to have been only temporary. By 2017, they had snatched up US$19 billion ($24.7 billion) worth of U.S. homes and US$10.5 billion ($13.6 billion) in the 12 months leading up to March 2018.

It’s not that the loonie has regained strength. The exchange rate has been holding in the range of US75-80 cents for over two and a half years. And the bargain home prices of the post-crisis era are now long gone. In Naples, for example, Bates said the prices of downtown and beach-side properties have doubled over the past six to seven years, and even in less coveted areas, they have now fully recovered.

Meanwhile, interest rates have been climbing on both sides of the border, pushing up the cost of mortgages.

Bates’ northern clientele used to be mostly boomers looking to turn into snowbirds. But now he’s increasingly seeing families with children who fly south just for a few weeks or a long weekend.

But Canadians still seem to have money to spend and appear to have gotten used to the idea that everything in the U.S. now costs 25 per cent more, according to Bates.

U.S. still relatively cheap compared to some areas of cottage country

Rob and Melanie McLister, both Toronto-based mortgage brokers at intelliMortgage, are among the Canadians who have recently been buying down south.

After considering a vacation home in Muskoka, one of the hottest markets of Ontario’s cottage country, and Florida, the couple eventually settled for the latter.

There were a number of things to consider, McLister told Global News.

Prices depend on what and where you buy. “An oceanfront condo in Naples, for example, will cost you roughly the same as a nice rustic cottage on a smaller lake in Ontario,” McLister said.

Beach condos are starting at US$600,000 ($788,000), Bates said. By contrast, the average price for a Muskoka lakefront property was $1.5 million, according to a 2017 report by Royal LePage.

And compared to the Greater Toronto Area, which receives 115,000 new residents every year and where one in six own vacation homes, “in Florida there is more supply,” McLister said.

But supply restraints aren’t a problem just around places like Toronto and Vancouver. Alberta cottages are, in fact, the priciest in Canada — going for over $800,000 on average, according to the Royal LePage report — due to a dearth of lakeside properties in the province.

Another advantage of properties in milder climates is they allow for a longer rental season.

“In Ontario cottage country [that] is usually no more than four months a year,” McLister said. “That’s not long to generate the revenue you need to pay for a year of expenses.”

However, Canadians shouldn’t assume buying in the southern U.S. means being able to rent year-round.

In southern Florida, for example, “you get fewer renters and skimpy rents in the summer,” McLister said. In the northern part of the state, “you get fewer renters and smaller rents in the winter.”

But what turned out to be truly painful about buying in Florida was getting a mortgage, McLister said.

“We’re qualified borrowers and mortgage pros. We thought we knew what to expect, but man, were we in for a rude awakening,” he said. “Many U.S. lenders that say they lend to Canadians don’t tell you that they ask for three times the paperwork and may not recognize all your Canadian income.”

Canadians lenders like RBC and BMO that offer U.S. mortgages for Canadians “are more willing to accept solely Canadian income. But they still have to comply with all the U.S. paperwork and underwriting rules, which are more onerous than in Canada,” McLister said.

In Canada, closing a real estate purchase takes between one and four weeks, he added. In the U.S., six to seven weeks is the minimum.

Buyers also face higher interest rates in the U.S. The average rate for the most common 30-year mortgage is 4.83 per cent in the U.S. By comparison, the average fixed rate for Canada’s staple five-year term mortgage with a 25-year amortization is 3.54 per cent. (However, U.S. mortgages allow for borrowers to lock in their rates for up to 30 years, which eliminates the risk of having to renew at a higher rate.)

Buying a U.S. property also involves steeper fees, McLister said. He and his wife paid at least $4,500 worth of fees that don’t exist in Canada.

Still, many Canadians avoid the bureaucratic headaches of a U.S. mortgage by borrowing against a property they already own in Canada and using the loan for a cash purchase in the U.S., McLister said. This common financing tactic also allows buyers to minimize their exposure to exchange rate fluctuations, as the debt repayments are in Canadian dollars.

But buying U.S. property often comes with complicated legal and tax issues. Simply owning U.S. property doesn’t mean having to declare income or pay taxes in the U.S., said David Altro, a Florida attorney and Canadian legal adviser based in Toronto. However, renting, selling, gifting or passing on a U.S. home as an inheritance can result in steep taxes without careful planning, he added.

Another issue Canadians should be aware of is Americans’ propensity to file lawsuits and award multi-million dollar judgments. If you’re renting, and your tenant slips and falls, you better make sure that “the sole recourse is the [U.S.] property and not your assets in Canada.”

Usually, the best strategy to tackle most of those issues is holding U.S. property through a cross-border trust, Altro said.

That’s a lot for Canadians buyers to be wary of. Still, asked why he decided to opt for Florida, McLister had a simple answer.

“The thermometer,” he said.

Private Mortgage Source provides private mortgage options for Canadians looking to buy properties in the US; whether it is a secondary property, multifamily investment property of commercial property, we can help. Call us at 1-855-808-6615 and speak to a specialist about getting a private mortgage in the US.

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A lien is a claim on your property as a result of funds you owe to the claimant. Liens on homes are either voluntary or involuntary. Address these differently to ensure your home sells in a smooth, efficient transaction.

Voluntary Liens
Voluntary liens are common in real estate. These are the mortgage notes associated with your property as collateral. There is no need to address any of these liens before you sell the house. Instead, make sure the escrow company has all the pertinent loan information to satisfy these loans during the closing of escrow. Escrow will get a release of the lien.

Voluntary liens tend to be straightforward unless you are upside-down on the mortgage. When you are upside down, you owe more than the house is worth. If this is the case, work with the existing loan servicing company and your realtor. A short-sale or deed in lieu is used as a voluntary way to get out of the house and its debt, ideally releasing the amount still owed on the loan after the property proceeds pay down the balance.

Involuntary Liens
Involuntary liens are liens imposed upon you either by court order or other means. These liens may include but aren’t limited to tax liens, mechanics liens, court judgments against you, or child support orders. Selling your house with involuntary liens on the title can jeopardize the home sale closing. Buyers might become reluctant to close a transaction where lingering liens exist.

If you suspect there is a lien, get a current abstract of the title report from the county assessor’s office. This shows you any liens officially on the property. Check for any errors; you might have paid the child support arrears, but the courts haven’t released the lien yet. Correcting errors means first getting a copy of the completed payment with any receipts you have. Send a letter to the lien holder and provide documentation to show the lien was satisfied. Request the lien be removed. If they don’t or even refuse, the only other option is to file a “quiet title” lawsuit to have the lien removed.

If there is a legitimate lien, although involuntary, see what you can do to settle the lien. Contact the entity and either negotiate it or pay it. Make sure all communications and agreements are in writing. Use either a template or copy the language on a universal form, Release of Lien on Real Property, and have the lien holder sign and notarize the document. Take the document to the county recorder’s office to remove the lien.

Potential Sale Problems
While it can be time-consuming and delay the listing of your home, it is best to get all involuntary liens released prior to the property sale. If you don’t, there is the risk of sellers seeing the title report and backing out of the deal. This could sour the market to your property or result in sellers negotiating lower prices because they think you are in a bind.

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On Monday, stricter new federal rules about who can qualify for an insured mortgage took effect across the country. Now, all new mortgage applicants have to pass a ‘mortgage stress test,’ which tries to predict whether they can keep up with mortgage payments, at their current salary levels, if interest rates were to rise.

Low-interest rates have fuelled red-hot real estate markets in south-central Ontario and, especially, Vancouver. As real estate values have skyrocketed in both places, uneasiness has grown about affordability and whether real estate has become a bubble economy.

Because of mortgage insurance guarantees, Ottawa has a stake in homebuyers not buying more than they can afford (leaving aside risks to the wider economy).

“I want to make sure we are proactive in assessing and addressing the factors that could lead to excess risk,” federal finance minister Bill Morneau said of the changes.

Under the new rules, borrowers will be tested on their ability to pay their mortgage if rates were as high as the five-year posted mortgage rates among Canada’s largest banks, which currently average 4.64 per cent, according to the Bank of Canada.

So if the mortgage stress test limits won’t let you buy the house you have in mind (or any house at all), is that the end of the story?

Not necessarily, but the answer really depends on your attitude to risk, and debt.

There are smaller mortgage lenders who don’t come under the rules because they’re not backed by mortgage insurance.

“These rules apply only to banks,” explains Ron Alphonso, who runs a Toronto-based private mortgage fund. “They do not apply to some of our secondary lenders.”

“We have a large number of smaller financial companies — you’ve never heard of them, but there are a large number of them. They are corporations that have multiple investors and they lend the money out.”

Secondary lenders typically specialize in a region, and are smaller-scale, in the $5-50 million range, Alphonso explains.

The down side is that they set rates that reflect their risk.

“The problem with all the smaller guys is that they have a higher interest rate than the bank,” Alphonso warns.

Rates can run from eight to 11 per cent, says Toronto mortgage broker Marcus Tzaferis.

“Does it make sense to borrow money in order to circumvent the rules?,” Tzaferis asks. “It’s not just an easy yes or no. Who is our borrower? It’s individually subjective, and it’s all influenced by the property market.”

It might make sense for someone who failed the test for the house they wanted for having too low a salary, but who expected to be paid much more in the near future, Tzaferis says.

Common sense says that if you can’t borrow as much as you would like, the wisdom of the herd is telling you something. But people have different attitudes to the wisdom of the herd, and always will.

Banks and the federal government have become edgy about consumer debt, and overextended homeowners’ vulnerability to even a small rise in interest rates.

In June, the Bank of Canada described rising household indebtedness and the housing market as “key financial system vulnerabilities.”

The greatest risk to the national economy involved a recession hitting heavily-indebted households, and also causing a “broad-based correction in house prices,” the central bank warned.

“This chain of events would strain the financial system and the real economy.”

A rate increase driven by higher risk premiums was also flagged as a risk to the national economy.

In February, Bank of Canada deputy governor Lawrence Schembri urged both borrowers and lenders to be cautious and “take into account the impact of higher borrowing rates in the future on the cost of servicing mortgages and other loans.”

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Excessive debts are a headache and cause nothing but a lot of worry and anxiety.

Let’s face it, earning enough money to care for daily living expenses while paying down credit card balances can be challenging; but thank goodness there are options available to those burdened with debt!

Debt consolidation mortgage loans are easy to qualify for and provide enough funds to pay off creditors. The funds can be used to pay off credit card balances, personal loans, auto loans, and to even invest in an investment property of business. Once credit account balances are zero, homeowners simply submit one monthly payment to repay the debt consolidation loan.

Because debt consolidation mortgage loans have very low-interest rates, most homeowners are able to repay the loan within a short period of time with low, affordable monthly payments. Expect to save hundreds each month!

If opting to take advantage of a debt consolidation mortgage loan, you may select a mortgage refinancing or home equity loan option.

How to Consolidate Debts with a Mortgage Refinancing

Cash-out mortgage refinancing is perfect for consolidating unnecessary debts. Moreover, this method serves multiple purposes.

With a cash-out refinance, homeowners borrow from their home’s equity and use the money to consolidate debts. Refinancing creates a new home loan. Furthermore, if borrowing cash from your equity, the mortgage principle will also increase.

Home Equity Line of Credit and Home Equity Loans

Another approach for using your home’s equity to obtain cash for a debt consolidation involves getting a home equity loan or line of credit. In this case, loans are approved up to the amount of equity you have built in the home. Because home equity loans are protected, homeowners with less than perfect credit may also get approved.

Home equity loans are dispersed as a lump sum. This is ideal for paying large credit card balances and other types of loans. With a line of credit, homeowners are approved for a revolving credit account. Lines of credit are also ideal for debt consolidation

Privatemortgagesource.com is your number one source for debt consolidation solutions. Reach out and let’s discuss the best options that suit your needs.

$300K mortgage with 5% down will soon cost $6 more every month, insurer says

Genworth Canada, the largest private mortgage insurer in Canada, has matched the CMHC’s move earlier this week to hike the premiums it charges homeowners to insure their mortgages.

On Monday, the housing agency raised its mortgage premiums across the board in response to new federal regulations aimed at increasing the amount of cash the CMHC has on hand to hold against their mortgages.

By law, when a homeowner wants to buy a home with less than 20 per cent down, they must purchase mortgage insurance. The borrower pays the premium, while the beneficiary is actually the lender, who will be covered if the borrower defaults on the loan.

Such fees can run into the thousands of dollars depending on the house price. Under the new rules, someone borrowing $500,000 with less than 10 per cent down, for example, would be charged an additional $20,000 for mortgage insurance over the life of the loan. But lenders typically pay that fee themselves up front and then add an additional charge on the borrower’s monthly mortgage payment, so they don’t appear too onerous.

CMHC insures the vast majority of Canadian mortgages, but competes with Genworth and other companies for new business.

Genworth on Wednesday moved to match the CMHC’s rates exactly, with the new fee structure ranging between 0.6 per cent all the way up to 4.5 per cent, for homeowners borrowing up to 95 per cent of their home’s value with non-traditional down payments.

Genworth estimates that a typical first-time homebuyer putting down 5 per cent of a home’s value will see an increase of approximately $6 in their monthly mortgage payment. That’s assuming a $300,000 mortgage, amortized over 25 years, and locked in at 3 per cent for the first five.

“We believe this new pricing is prudent and reflects the new regulatory capital framework for mortgage insurers that came into effect on January 1, 2017,” CEO Stuart Levings said in a release. “Genworth Canada remains committed to helping Canadians achieve responsible homeownership. We believe these pricing actions are supportive of the long-term safety and sustainability of the Canadian housing finance system.”

Similar to the CMHC’s new fees, Genworth’s new rates will be in effect as of March 17 of this year. Anyone who already has a mortgage or has applied for one before that date will be grandfathered into the old fee structure.

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U.S. households carry an average of $15,762 in credit card debt, and in 2015, they paid an average interest rate of 13.66% on it. Many cardholders pay higher rates on higher balances.

It might seem as though there’s no relief from high-interest balances, but you can take steps to lower your burden. For homeowners, one of them is to consolidate your debt and lower your monthly bills by refinancing your mortgage.

Using low mortgage rates to consolidate debt

You’ve probably noticed how low mortgage rates have been during the past few years. The 30-year mortgage rate hit 3.31% in November 2012, the lowest rate in history. Fast forward to March 31, 2016, and it inched up only slightly, to 3.71%.

This has been great for homeowners who want to lower their monthly mortgage payment by refinancing to a lower rate. But it can also help you get rid of high-interest credit card debt.

Almost 10 percentage points separate the average 30-year mortgage rate (3.71%) from the average credit card interest rate (13.66%). This is because credit card debt is perceived as riskier than mortgage debt, and credit card companies charge interest accordingly.

But if you can move debt that costs you 13.66% to a vehicle that charges you only 3.71%, you can effectively give yourself almost a 10% return on your money.

One way to do this is to perform a cash-out refinance. This type of refinance allows you to turn the equity you’ve built up in your home into cash that you can use for whatever you like. Most people use it to pay off high-interest debt, fund a large purchase or finance a home improvement project.

Many people like to consolidate credit card debt using a cash-out refinance because they can make fixed payments on it over a set period of time, rather than paying a revolving balance every month.

Doing a cash-out refinance the right way

If you think a cash-out refinance might be a good idea, make sure you have enough equity that the cash you take out of your home won’t leave you with a loan-to-value ratio of more than 80%, post-refinance. Exceeding that ratio means that you’ll have to buy private mortgage insurance, which can easily cost 1% of the loan value every year. On a $250,000 mortgage, that would be $2,500 annually.

To calculate your current loan-to-value ratio, divide your current mortgage balance by the approximate value of your home.

(Current Mortgage Amount) / (Approximate Home Value) = Loan-to-Value Ratio

If you want to cash out some home equity to pay off high-interest credit card debt, add the amount of debt you’re paying off to the loan amount, like this:

(Current Mortgage Amount) + (Credit Card Balance to Pay Off) / (Approximate Home Value) = Loan-to-Value Ratio

Here’s an example: Let’s assume your current mortgage balance is $300,000 on a home worth approximately $450,000, and you’d like to pay off $15,000 in credit card debt. Your calculation would look like this:

($300,000 + $15,000) / $450,000 = 0.7 or 70%

Since your loan-to-value ratio is less than 80%, you can cash out enough equity to pay off your credit card debt without having to pay for mortgage insurance.

Potential downsides of a cash-out refinance

When you perform a cash-out refinance, you’re increasing your mortgage balance by the amount of credit card debt you’re paying off. This might cause your monthly mortgage payment to increase, depending on the interest rate and terms you qualify for.

You should also consider the length of your mortgage. If you’ve already paid several years off your mortgage, you probably don’t want to extend it to 30 years again. Instead, consider lowering the term to 25 or 20 years. The shorter term would lower your mortgage rate even further and save you a lot of money in interest. However, it could lead to a higher monthly mortgage payment.

Look at all your available options and find the loan that best fits your needs and goals.

Call now to speak with a private lending expert to learn more about debt consolidation options.

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