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Category: Mortgage Financing

  • Pros and Cons of Refinancing Your Mortgage to Get Out of Debt

    Mortgage refinancing is a popular way to get out of debt, but is it the right option for you?

    During the ongoing COVID-19 pandemic, you may be looking for ways to reduce your debt load. If you own a home, you can use available equity to pay down your debts. Read on for the pros and cons.

    Pros

    • Refinancing your mortgage allows you to put debts into one payment.

    This can give you more freedom in your budget as you will have a fixed payment on a fixed schedule — so you will know exactly what you owe and when.

    This is an effective way to quickly deal with high-interest debt while managing your budget.

    • It lets you keep your house (unlike some cases of filing for insolvency).

    In some cases, filing for bankruptcy or a consumer proposal puts your assets — like your house — at risk.

    With a mortgage refinancing, your home is safe so long as you meet your payments.

    • You could save money if you get a lower interest rate.

    If you refinance for a lower mortgage rate, you could save money on your monthly mortgage payments if you bought your home at a time when interest rates were higher.

    • It doesn’t harm your credit score (at least not immediately).

    When you file for bankruptcy or a consumer proposal, your credit score takes an immediate hit and you are left with a low rating for five-to-seven years.

    With mortgage refinancing, however, that doesn’t happen. In fact, if you are using the equity to pay off high-interest debts, like credit cards, your credit score could go up!

    The caveat here is that if you default on your mortgage or miss a payment, your long-term credit score could still be affected.

    Cons

    • It could restart your amortization schedule.

    If you were five years into a 25-year mortgage term and decided to refinance, your term would reset to 25 years. This means you would be paying your mortgage for an extra five years.

    While you would be paying mostly interest for the last five years, it will be longer until you are mortgage-free.

    • You might get a higher interest rate.

    Depending on when you bought your house, your mortgage rate could actually go up.

    • You will have less equity to access later.

    By taking out equity now, it may be harder to access later (at least through a refinancing) and you’ll have to wait for it to accumulate again.

    • It may not be possible if you’re carrying too much debt.

    Like getting a mortgage to begin with, you have to qualify for a refinancing. If you’ve lost your income, your credit score is low, or you’re carrying too much debt, you may not qualify.

    (If this is the case, talk to a debt counsellor – they can help you clean up your finances so you can qualify.)

    • You may have to pay closing costs.

    Mortgage refinancing typically comes with closing costs and other fees. These numbers could affect your decision.

    • If you’re breaking your current mortgage term, it might not make financial sense.

    Breaking your current term early can come with additional costs.

    If mortgage refinancing won’t work for you, there may be another option that does, such as taking out a second mortgage, a home equity line of credit (HELOC), or another debt consolidation method.

    Whatever method you choose — refinancing or not — the important thing to keep in mind is that it will work so long as you keep your finances under control. Debt consolidation isn’t an invitation to start buying more. You need to have a plan for how to manage your money after refinancing (or your chosen debt management method) too.

    At DebtCare Canada, we can help you do both — explore options to deal with debt and create a plan to stay debt-free for good.

    We offer first mortgages, second mortgages, HELOCs, and more.

    Contact us today for a free consultation. Call or text 1-888-890-0888 or visit www.debtcare.ca.

  • Affordable Housing in Toronto is Still a Major Problem

    Affordable housing in Toronto has been difficult to find for a while now — but despite hopes that it would get better, it is still a major problem for many.

    A recent report from Zoocasa determined that in the Greater Toronto Area, it would take 32 years for a household earning a median income to save a down payment for a typically-priced home.

    And for those renting instead of buying, affordable housing isn’t much better.

    The Canadian Rental Housing Index recently determined that in 20 Canadian ridings — including some in the Greater Toronto Area such as Willowdale, Thornhill, Richmond Hill, Markham-Unionville, University-Rosedale, and more — at least 25% of renters are spending 50% or more of their income on rent alone.

    At least 48% of renters are spending 30% or more of their income on rent.

    “Housing is typically considered affordable if a household spends less than 30% of its before-tax income on rent plus utilities,” the Index stated.

    See more of the Index results here: http://rentalhousingindex.ca/en/#intro

    With increases to home prices and rental rates, it’s no wonder that it’s getting harder and harder to make ends meet. It’s too expensive to live in the Greater Toronto Area and other major cities, and lenders know it.

    If you are in this situation, what can you do?

    While this is a tough situation to be in, the first thing to do is try to free up room in your budget. If you are using credit to balance the shortfall, you may find that doing away with the debt frees up the cashflow you need to pay rent or save more for a down payment.

    Debt can harm your budget in two ways:

    First, it can get in the way of your cashflow. If you are always making debt payments (like paying off your credit card balance plus interest) you’re spending money you could use elsewhere.

    Second, many lenders use your total debt service ratio (TDS) to determine how much you can afford to borrow — particularly when it comes to a mortgage. In addition, carrying too much debt can hurt your credit score, which makes it harder to be approved for low-interest loans. If you are hoping to get a mortgage in the near future, or renew an existing one, lowering your total debt-to-income ratio will only help.

    While getting out of debt won’t make Toronto’s home and rent prices drop, it can make it easier for you to balance your budget and save money at the same time.

    DebtCare Canada helps Canadians deal with outstanding debt. We’ve helped thousands of people reduce or restructure their debt, repair and rebuild credit, access financial help, and more.

    Contact us today for a free assessment to see how we can help you manage your budget while dealing with the lack of affordable housing in Toronto and the GTA.

    Call 1-888-890-0888 or visit www.debtcare.ca.

  • Don’t Wait Too Long to Refinance Your Mortgage – Get Ahead of Rising Interest Rates

    If you’re interested in refinancing your mortgage, it’s better to act sooner rather than later.

    Why? Let’s break down the reasons.

    1. New Canadian mortgage regulations are making it harder to access financing.

    On January 1, 2018, the Canadian government implemented new mortgage rules onto federally-regulated lenders (such as banks). These lenders now have to implement a mortgage “stress test” on potential homebuyers, and those seeking mortgage refinancing.

    What this means is that if you were to get a new mortgage, or refinance an existing one, a federally-regulated lender would need to test your ability to afford the mortgage against a higher mortgage interest rate.

    If you had a mortgage rate of 3%, they might have to test your ability to pay against a 5% rate, for instance. They are also required to take your total housing-related debt (Gross Debt Service ratio – or GDS) and your total overall debt (Total Debt Service ratio – or TDS) into account.

    However, non-federally regulated lenders, like credit unions and private mortgage lenders, are not subject to the mortgage stress test regulations. Unlike big banks, they aren’t required to stress test your mortgage refinancing or take your GDS and TDS into account – but that could be changing.

    Earlier this year, a Reuters article cited three unnamed federal sources who said that the Canadian government is considering extending the stress test regulations to private lenders. This means that non-bank mortgage lenders would be required to use the same measurements for extending mortgage financing as the big banks.

    Canadian Finance Minister Bill Morneau denied the rumours, but the possibility is still there – and if it does happen, you’ll want to be prepared. Which is reason #1 why it may be better to seek mortgage refinancing now, rather than later.

    1. Property values are declining.

    Reason #2 has to do with value of your property. If you’re refinancing, you likely want to access the most equity possible.

    Unfortunately, home prices are rising slowly, perhaps due to the impact of the mortgage stress test and Canadian interest rate increases. And less homebuyers are able to access the market.

    More than 100,000 Canadians have been kept out of the housing market due to the stress test regulations, according to Mortgage Professionals Canada.

    If you’re thinking of refinancing your mortgage and this trend continues, it might mean that your property value could drop, too. And if private lenders are subjected to the same regulations, it could mean even less people entering the housing market – and even further property value declines.

    1. Mortgage rates are rising.

    Five-year fixed rate mortgages reached their lowest point in late 2016, according to Rate Hub. Since then, mortgage rates have gone up about 0.5% per year. At the beginning of 2019, the lowest fixed rates were around 3.29%.

    Variable mortgage rates are also on the rise (and subjected to Canadian interest rate increases).

    “Even with discounting, the best five-year variable mortgage rates are still up about 0.75% since this time last year,” says Rate Hub.

    The moral of all this is that if you’re considering mortgage refinancing – don’t wait.

    At DebtCare Canada we offer first mortgages, second mortgages, home equity lines of credit, and more.

    Contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.

  • TREB Has to Make Sold House Prices Public – What This Means for You

    An important court case involving the Toronto Real Estate Board (TREB) could have big benefits for consumers when it comes to sold house prices.

    For nearly seven years, TREB has been trying to keep sold house prices private — meaning only real estate agents or other mortgage professionals could access those figures.

    But on August 23, 2018, the Supreme Court of Canada turned down TREB’s appeal to keep home price data private.

    This means that consumers may be able to see historical sales listing data and prices online, whereas before that data was only available to real estate professionals.

    How does this affect the average consumer? It could be a big help. Consider the following:

    • With access to historical sales data, you’ll be able to see how much your house has sold for in the past.
    • You’ll be able to see how many times a house has sold in the past.
    • You’ll be able to see how much houses in your neighbourhood sell for to get an approximate idea of your home value.
    • If you’re considering putting an offer on a home, you’ll be able to see how much it has sold for in the past.
    • There will likely be greater competition and innovation in the Greater Toronto Area (GTA) real estate market, which could have a positive affect for consumers.

    This decision only affects GTA home data currently, but it may spread to other Canadian cities. Many real estate boards were watching the TREB court case to determine their own action. Now that a legal precedent has been set, it’s likely that other boards will follow suit.

    Similar real estate data has been available publicly in the U.S. for the past 10 years.

    As Canadian interest rates increase and new mortgage stress test rules are in place, it’s more important than ever for homeowners or potential homebuyers to understand the real estate market. This could help you decide whether you should keep or sell your home.

    Time will tell how exactly the court order plays out, but we are calling this a victory for consumers.

    Interested in buying a home or selling your house? DebtCare Canada can help. We offer first mortgages, second mortgages, home equity loans, and more.

    Contact us today for a free consultation. Call 1-888-890-0888 or visit https://debtcare.ca/.

  • Should You Get a Home Equity Loan to Pay Off Debt Before Interest Rates Increase Again?

    How confident are you that you could survive another Canadian interest rate increase? If your answer is “not very” perhaps it is time to consider getting a home equity loan to pay off debt.

    Since July of 2017, the Bank of Canada (BOC) interest rate has increased from 0.5% to the current 1.5%. Although the BOC held off on increasing the rate again in September of 2018, economists speculate that rates could go up as soon as October 24, 2018 — the next scheduled BOC announcement.

    Throughout the remainder of 2018 and 2019, experts predict that interest rates could reach as high as 2.25%. If that happened, would you be able to cope?

    Increasing interest rates affect all forms of unsecured debt — credit cards, lines of credit, unpaid bills, variable-rate mortgages, and more. Even some secured debts, like a fixed-rate mortgage, could be affected when it is time for renewal as Canadian mortgage rates have also increased along with the interest rate.

    This means that if you owe $10,000 on a credit card and are paying 1.5% interest, you would owe $10,150 with the interest calculated. However, if the interest rate were to increase — say to 1.75% — you would owe $10,175.

    That may not seem like much of a difference, but credit card interest rates are rarely that low, so you may be paying even more in interest. In that case, even an extra $25 could be a big burden. And many people have more than $10,000 worth of debt. Some have hundreds of thousands worth of debt; 1.75% interest on a debt of $100,000 would be an extra $1,750.

    Plus, the longer it takes to pay off a loan, especially one like a credit card debt without a repayment schedule, the more interest you will be charged. Imagine that extra $25 multiplied by 12 months — suddenly you would be paying $300 more during the year than you otherwise would have. Even if you can afford it, couldn’t that money be put to better use elsewhere?

    The solution is to deal with your debt before interest rates increase again. And you may just be standing on a way to pay it off — literally.

    If you own a house, you could potentially access financing to pay off your outstanding debts by taking out a home equity loan or refinancing your mortgage. You would likely be left with one monthly loan that you would have to repay, but you would have a fixed-interest rate. This way you would know exactly what you have to pay every month, so you could plan for the expense.

    Some debt consolidation options available through your home equity include:

    By consolidating debt through a home loan or mortgage refinancing, you could protect yourself against future interest rate increases and make sure you stay financially well no matter what the BOC decides.

    At DebtCare, we offer one of the most competitive financial programs to help people no matter their credit or income. Bad credit? No problem. Self-employed? No problem.

    Contact us today for a free consultation to find out more about using a home equity loan to pay off debt.

    Call 1-888-890-0888 or visit https://debtcare.ca/financial-products/.

  • Toronto Housing Market Cooling? Now’s the Time to Get Mortgage Financing Locked Down

    Back in April, after much discussion and prompting from outside sources, the Ontario government instituted several measures to cool a continually hot Toronto housing market. These measures are an attempt to temper rising prices which are becoming more and more prohibitive for the average Canadian and to reduce the impacts of a potential crash.

    As noted in a recent CTV News article, “the 16-point Fair Housing Plan to tame the Greater Toronto Area’s expensive real estate market, including measures such as expanded rent control and a foreign buyers’ tax,” has already had an impact.

    Furthermore, back in June, the Toronto Real Estate Board reported that “active listings in the GTA surged 42.9 per cent from a year ago and sales plunged 20.3 per cent in May compared to the same time last year. Although the average selling price for all properties for the month of May was $863,910, up from $752,100 last year, it was still down from $919,614 in April, according to the real estate board.”

    The data suggests that a cooling has already started and is likely to continue. With the market cooling, now’s the time to think about getting mortgage financing locked down.

    Why? As it currently stands, the Toronto housing market supports high home values. However, if it continues to cool and home values fall, homeowners will have less home equity to take advantage of.

    This is a particularly sensitive issue for those considering refinancing to consolidate debt – an option which has become very popular with the current housing values. More equity typically means more access to funds in order to consolidate, and often a better interest rate.

    Moreover, if Canadian interest rates continue to rise, and thus mortgage payments rise, more equity may not necessarily cover what you need it to.

    If you want to borrow money, borrowing while the market is high is your best bet. As mentioned, if the market cools significantly and that equity is no longer available, or the interest rate increases again, you may have fewer options to deal with the debt.

    A second mortgage is a great way to borrow against your assets without the penalties associated with breaking your first mortgage. If you’ve been considering a financial move to strike while the iron is still hot, don’t take too long to do so.

    At DebtCare, we can help you discover how to make your home work for you.

    Get in touch with us today by calling 1 (888) 890-0888.

    Source: CTV News, “Cooling measures already affecting hot Toronto housing market: survey,” http://www.ctvnews.ca/business/cooling-measures-already-affecting-hot-toronto-housing-market-survey-1.3473582.