With inflation and rising interest rates, many households are struggling to make ends meet. What if your property could help you regain control of your finances?
The pandemic prompted many households to save, but since then, debt levels have skyrocketed. Balances have accumulated on credit cards and the minimum payments to be made each month are putting the finances of many Quebecers at risk.
Added to this is the shock of mortgage renewal due to the increase in interest rates over the past year. According to CMHC, the total amount of mortgage loans that will need to be renewed by 2025 exceeds $675 billion. The federal agency also estimates that in 2024 and 2025, 2.2 million mortgages will face an interest rate shock, or 45% of all those outstanding in Canada. Most were taken out when fixed rates were historically low, but also when property prices had exploded.
Do you recognize yourself in this scenario and are you an owner? In this case, you could use your loan to regain control of the situation.
Refinance your mortgage
With rates usually reaching 19.9%, credit card debt is expensive. The same goes for auto loans, most of which run around 7% to 8%. As a result, hundreds of dollars come out of your pockets every month to pay off these debts.
“The time for renewal can be a good opportunity to take control of your finances,” emphasizes John Fucale, senior vice-president, broker relations at Multi-Prêts Hypothèques.
Mr. Fucale performed some calculations to illustrate two scenarios with different mortgage balances ($175,000 and $450,000). At the time of renewal, the additional sum of $20,000 was borrowed in the first example, and $40,000 in the second. Calculations are based on an interest rate of 5.14%.
Pay off expensive debts
John Fucale specifies that when refinancing, it is usually possible to borrow up to 80% of the equity in the property.
You should know that refinancing requires restarting the qualification and approval process with your financial institution, in particular the stress test (stress test). These steps will allow your mortgage lender to ensure that you will be able to make your repayments. You will also have to go back to the notary.
But ultimately, this debt consolidation will allow you to pay off creditors who charge very high interest rates every month and save money.
Remember that if you increase your loan amount, it will likely take you longer to pay off your mortgage. In addition, there are other costs to consider, such as property appraisal, mortgage registration, etc.
Another option: pay your debts with your mortgage line, if you have one. However, the interest rates that apply to this type of margin have increased significantly in recent months. Do your calculations carefully to know which option is the most interesting in your case.
ADVICE:
· When it comes time to renew, don’t accept your financial institution’s offer without thinking. Shop around or work with a mortgage broker to find the best option for your situation.
· You should not consider your property as an “ATM”. Any refinancing strategy should be carefully considered. It can be worth it if you benefit from lower interest rates on your debts, and of course, you don’t go back into debt afterwards.
· Each case is unique, a professional will help you determine what is the best scenario for you.
2024-04-02 23:41:56
#control #finances #property
