Consolidating Your Debt During COVID-19
The COVID-19 pandemic has made it increasingly more difficult for many Canadians to make ends meet. Thousands of workers nationwide have lost their jobs or experienced a substantial income reduction. The Canadian government has launched several government funded programs like the Canadian Emergency Response Benefit (CERB) geared at helping unemployed Canadians stay afloat. However, the $2000 monthly CERB payments are often not enough to sustain many Canadian households who are concerned with paying their mortgage along with other high interest debts such as credit card debts, all while trying to feed their families.
If you are a homeowner, then you might be more fortunate at a time like this as you may have the opportunity to access your home equity and consolidate some of your high interest debts. By tapping into one’s home equity, homeowners can cut down their monthly debt expenses and start paying down their debts even faster, despite the risky financial climate imposed by COVID-19. Interest rates in the current economic market are also at record breaking lows, which can make the prospect of consolidating high interest debt even more attractive.
What Is Home Equity & How Can You Access It?
Home equity is the difference between the current value of your home and the unpaid balance of your mortgage. The longer you have owned your house, the more you have paid down your mortgage and the value of your property based on market activity all affect the amount of equity you have in your home. Once you have lived in your home for several years and have established a higher percentage of ownership, you will have the ability to use your home equity as leverage to take out extra money from your mortgage amount.
Homeowners interested in accessing their home equity often have two main options for financing: a Home Equity Loan and a Home Equity Line Of Credit (HELOC). A Home Equity Loan, also known as a second mortgage, allows a homeowner to tap into their available home equity (the portion of the home’s value that is not mortgaged) and withdraw a lump sum amount. The borrower will then need to make monthly interest-only payments while the interest rate remains set until the designated date of renewal. This is a great option for homeowners that need a larger sum of cash ranging as low as $20,000 to as high as $100,000, $200,000, and even over $1,000,000 depending on the value and available equity in the home. Homeowners looking to refinance their homes and take out additional equity can use the extra money for anything from debt consolidation, investments, home renovations, higher education or other life expenses.
Borrowers accessing the available equity they have built up in their home can also have the option to create a Home Equity Line Of Credit (HELOC) for themselves. A HELOC allows the homeowner to withdraw cash from the line of credit and repay it as they find necessary, as long as they make the minimum monthly interest payments. They do not need to withdraw all of the available money in a lump sum and can use the line of credit as if they were using a credit card, but at much lower interest rates. Similarly to a second mortgage or third mortgage, HELOC’s are often appealing to homeowners with a large sum of debts on multiple high interest credit cards and other high interest loans. This is because they allow the borrower to pay off high interest debts and consolidate them into a more manageable and lower interest-only monthly payment.
Advantages Of Consolidating Debt Through A Second Mortgage or Mortgage Refinance:
- Increased cash flow: Multiple high interest debts consolidated into one lower interest rate can increase your available monthly income and help you save money in the long run.
- Customized financial plan: Working with a mortgage professional who can help you create a loan and debt repayment plan, spreading over a 2-5 year period, can help you in reaching and maintaining your financial goals.
- Streamlined payments: Multiple larger monthly payments can be combined into one single lower monthly payment with a lower interest rate that can help you pay your debts off faster.
- Credit score: Individuals with poor credit scores can qualify for a second mortgage which can help enable them to pay off their high interest debts and help them start rebuilding a better credit score. This is a factor that is very important when applying for a future mortgage or refinance.
- Principal repayment: When individuals are forced to pay off high levels of credit card debt using only their incomes, they are often not able to pay the whole sum of their debt. Instead they are left paying the minimum payments which often pay solely for the interest itself and therefore keeping them stuck in the vicious debt cycle. This endless loop can leave someone in a great deal of debt, stress, and substantially limit their financial standing. A second mortgage can allow you to pay the total sum of your credit card debt and only worry about making the appropriate monthly payments on your home equity loan.
As you can see there are many advantages to tapping into your home equity and either getting a second private mortgage or refinancing your current mortgage. A private mortgage is also a great option for potential borrowers with bad credit that are worried about undergoing a rigorous loan approval process. Since homeowners are using the equity in their homes as collateral for the loan, they are not seen as “risky” borrows and the whole application process becomes much quicker and less tedious. Home equity loans can also be very beneficial for self-employed individuals who might have a harder time reporting their income in a traditional manner.
If you are interested in accessing your home equity and consolidating your high interest debts, the trusted mortgage brokers at Clover Mortgage can help you get approved quickly and easily. With access to over 40 lenders, Clover Mortgage will work endlessly to get you the best mortgage rate for your needs.
Call Clover Mortgage today at 416-674-6222 or email us at email@example.com to speak with an experienced mortgage broker who can help you get out of debt faster.