Of Prime Interest: Consolidating your debt

The interest rates on those credit cards can be as high as 19 per cent.

  • Nov. 3, 2015 9:00 a.m.

At this time of year we start looking ahead to the coming winter months, to the Christmas season and what 2016 has in store for us all.

We, as mortgage consultants, also look ahead to see what’s in store for the mortgage market.

Interest rates are historically low and with the upcoming holiday spending it may be time to take a look at your debt structure.

We see through our mortgage applications where there are those who have credit cards, personal loans and unsecured credit lines and find it difficult to manage all of those payments.

On top of that the interest rates on those credit cards can be as high as 19 per cent and personal loan rates will generally run higher than what you would pay if they were secured by a mortgage on your home.

Also on unsecured credit lines the rates charged are around two per cent over the lender’s prime meaning a rate of 4.7 per cent.

We have to look at whether or not we actually need to have more than one credit card, personal loan and credit line.

This will cause you to pay more interest than is necessary.

In saying that. it depends on the amount of equity you have in your home for a refinance.

For example, if your home has a value of $400,000 and your existing mortgage balance is $200,000, you can refinance up to 80 per cent  of the value of the property or up to $320,000. In the event you have four credit cards with balances totaling $50,000, a personal loan of $25,000 and a credit line with a balance of $30,000 on an unsecured basis the total amount of those is $105,000.

You could consolidate that amount into your first mortgage of $200,000 for a total mortgage of $305,000.

That would simplify the number of different payments you would have to make into one easy payment at a much lower rate.

You would be able to eliminate three credit cards leaving you with one payment you feel comfortable with.

The personal loan would be alleviated and the unsecured credit line would also be gone.

What some of our clients do is make their payments as high as their budget will allow to ensure they pay down the added balance as quickly as possible.

Also keep in mind there is the option to make lump sum payments once each year and there is also the option to increase payments by up to a certain amount once each year.

Lump sum payments and payment increases will be from 15 to 20 per cent, depending on the lender.  Add to that weekly or bi-weekly payments and your mortgage balance will drop even quicker.

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