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://www.debtcare.ca/financial-products/.
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