How Refinancing Your Mortgage Can Help You Consolidate Debt

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Canadian homeowners are required by law to refinance mortgages every five years. But there is no limit on how often you can refinance, and there are many good reasons not to stick to the five-year window – for example, many homeowners choose to refinance every time interest rates fall in order to ensure lower payments and save money.

But refinancing your home isn’t all about lowering your interest rate. Refinancing can be a great way to improve your financial situation by using the advantages of equity capital – so if you are looking into debt consolidation options but are having difficulty getting a debt consolidation loan, refinancing may be the best way to do it.

However, before we can explain exactly how refinancing helps to consolidate debt, it is necessary to explain how refinancing actually works.

What is refinancing?

The word “refinancing” can be misleading because “re-financing” suggests that you are renegotiating the financing or debt for your home. The fact is that refinancing involves obtaining a completely new loan to replace the old one.

While homeowners usually refinance their mortgage with the same lender they worked with to secure the original mortgage, there is no reason you need to enter into a new mortgage agreement with the same provider.

In fact, working with a mortgage broker when refinancing current mortgage can help you get an even better rate, give you the option to extend or shorten your maturity, or turn some of your home equity into usable money. This is a particularly useful option for homeowners looking to consolidate debt.

Refinancing as a Debt Consolidation Tool

There is a debt the main problem in Canadaand, in particular, unsecured consumer debt. Many households spend huge amounts of money simply to cover interest on their existing debts. Since refinancing means getting a new loan, it can be used to free up additional cash to cover those high interest unsecured debts.

This is because refinancing gives you the ability to leverage your own equity. If you’ve paid off your mortgage for years, you now directly own a significant percentage of your property, and with the help of a mortgage broker, you can enter into a refinancing agreement that will allow you to cash out some of that asset to cover liabilities such as:

  • Credit card debt
  • Automatic payments
  • Payday loans
  • Student loans

While this will extend the period of time it takes for you to pay off your mortgage, it will also reduce your ability to pay off the remainder of your loans, helping you rebuild your credit and start charting a course towards a debt-free future.

As the economy begins to reopen after more than a year’s lockdown of the pandemic, interest rates are coming down. starts to creep up… But it is not too late to take advantage of this excellent opportunity to refinance your mortgage loan.

If you want to get out of the pandemic on a stronger financial footing by consolidating high interest debt into a new loan, contact a mortgage broker who can help you explore mortgage refinancing options.

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