At this time of year, many people are starting to think about reorganizing and looking over their finances. That said, it’s a great time to re-evaluate, make goals, and research options that could improve your financial well being.
- Home renovations, repairs, or remodelling
- Securing a lower mortgage rate (ideally before interest rates rise any further)
- Paying off Debt
- Purchasing a rental property
- Purchasing a second, or recreational property
All six of these financial goals are valid, and each has its own merit of why it might be something to consider in 2018, but it is critical that we focus on tackling bad debt first in order to further build your financial capability.
If you owe money for:
- Credit cards
- Consumer store cards
- Unsecured loans or lines of credit
- CRA outstanding balances
Then paying off these types of high interest debts should be your top priority. Consumer debt is at an all time high, and formulating a plan for the future is extremely important. In addition, many of these types of liabilities are tied to the prime rate, which continues to rise.
There are many approaches to get out of debt quickly; here’s 3 options to consider:
Plan 1: Pulling equity from your home by refinancing
This strategy is quite common and if you qualify, the least expensive option. The best time to consider this is as the term on your existing mortgage is coming up for renewal. If you’re 6 months out or less on your current term, we should be talking about your options.
If you’re further out from renewal than that, we may even be able to work with your lender to add new money to your existing mortgage without facing a penalty. We will be able to present potential solutions like blending your existing rate and the new rate to either the end of the current term, or to a new longer term. We are experts at presenting the math for these “blend to term” and “blend and extend” options for our clients.
Sometimes, blending your mortgage is not an option; you prefer to switch to a completely different product such as a Home Equity Line of Credit (HELOC); or the math simply points to the strategy of outright breaking your mortgage and paying a penalty. If this is the case, we can help you with some advice on how to minimize your penalty. There are various tactics commonly available so that your penalty is as low as possible before we fund a new mortgage. This is a fairly complicated approach, so working with you one on one for your particular situation is the play here.
Plan 2: Consolidating Unsecured Debt
Sometimes there isn’t enough equity in a home to refinance at the lowest rates available. Or it may be that the mortgage penalty to do so is prohibitive at this point. If that’s the case paying off your debts (especially the high interest ones) through an unsecured consolidation loan or line of credit is often the best approach. This will generally bring your overall interest rate down for your debts, and allow you to make one payment which can accelerate paying down the amount owed.
This consolidation loan can be amortized over a number of years to make the payments affordable. There are a number of lenders we work with that can facilitate this type of product, and we would be happy to refer you to an expert in this field.
Plan 3: Private Lending
In some cases, there may be equity available in your home, but paying the mortgage penalty does not make sense. Or perhaps, your situation has changed and qualifying for a traditional type mortgage isn’t in the cards right now. In these two cases (and many more); private lending may be the best option.
Even though private lenders typically offer higher interest rates, and higher lender fees compared to “institutional” mortgage rates, they:
- Will consider borrowers with “poor credit”.
- Will allow CRA debts to be paid off
- Will work with borrowers to consolidate all high interest debt
- Will be more flexible with income requirements (especially business for self)
- Will offer short terms (often with open options)
So although a costlier solution than Plan 1 or 2; private lending can sometimes be a short term solution to better cash flow immediately. At Quantus we offer private lending both in-house, and through a large network of private lending firms.
Although a little complicated, there are many financing options available depending on your financial goals. Working with a Mortgage Broker to guide and assist you to make the best financial decisions is a good start. We would be happy to meet with you and plan your financial goals and provide you with the best advice to succeed, no matter what those goals are.