Is Refinancing a Good Strategy for Paying of Debt?
Matrix Mortgage Global – Is Refinancing a Good Strategy for Paying of Debt?
Many Canadians today are facing crisis levels of consumer debt. If you and your household are in this situation, you may be looking for a way to get out. If you aren’t quite ready to take the more drastic measures of bankruptcy or a consumer proposal, you might be considering refinancing your mortgage.
What is refinancing?
When you refinance your mortgage, you are breaking your current mortgage in order to get a higher one. The additional money you receive can then be used for other purposes such as paying off higher interest debt.
When you use refinancing to consolidate your debt, it can not only help you lower your interest payments but in many cases, it can even reduce your total payments meaning you’ll have more money left over at the end of each month.
Advantages of refinancing for debt reduction
One of the biggest advantages of refinancing for debt reduction is that as long as you have equity in your home, it is fairly easy to get approved.
And while interest rates on mortgages have been going up lately, they are still considerably lower than high-interest credit cards and other types of loans. This means that refinancing could potentially help you to pay off your debts much faster than you would otherwise be able to.
Disadvantages of refinancing for debt reduction
As we stated earlier when you refinance it means you’ll have to break your current mortgage. And depending on when your renewal date is, breaking your mortgage could mean you’ll have to pay a hefty penalty. If this is the case, it may make more sense for you to get a second mortgage instead – but you should sit down with your mortgage broker to determine which strategy is right for you.
The biggest pitfall of using refinancing to help you pay off debt is the possibility of going back into debt after your refinance. This is a dangerous situation because doing so could leave you in a worse financial situation than you were in before. It is very important therefore that if you are going to refinance your mortgage in order to pay off debt that you have a plan in place to help you stay out of debt.
If you would like to learn more about mortgage refinancing, call Matrix Mortgage Global today at 1-877-366-2961.