Thinking about debt consolidation, renovations, using equity in your home for investment purposes, or just want to consider locking in to a lower interest rate? Many experts are saying that while rates are low, the time to lock in is now.
We have already seen a slight rise in fixed interest rates this week by an average of .25% and based on the recent hit to the bond yields we likely will see more. One expert believes this is a result of the recent U.S. federal election….a.k.a the Trump Factor. https://beta.theglobeandmail.com/globe-investor/personal-finance/genymoney/amid-rate-market-uncertainty-nows-the-time-to-strategize-on-housing/article32844796/?ref=http://www.theglobeandmail.com&campaign_id=A100&service=mobile
To be honest, the fact that Trump will be president still makes me uneasy, but for the sake of this blog being a source of information for my loyal readers I’ll try and stick to how it may affect the mortgage industry in Canada. While he wasn’t busy defending himself against those who thought his views sexist, racist and hateful, Trump campaigned on cutting taxes and major infrastructure spending to boost the US economy. If he follows through on these promises it will lead to inflation which simply put is bad for the bond market in both the U.S. and Canada. As a result, I expect to see an increase in FIXED rate mortgages. Why are rates going up right now you ask, when he doesn’t take office until January? Simply put, financial markets reacted to his campaign promises as if he’s implemented them the moment he won the election. (Sounds crazy right… it is.)
Enough on Trump, Let’s get back to our look at debt consolidation and consider this recent experience I had with a client.
DEBT CONSOLIDATION IN ACTION: MEET SAM
Sam recently came to me looking to refinance with two goals in mind: one, he wanted to pay less interest and two, he wanted to use that extra cash flow to purchase a rental property. Sam was currently locked into the following:
Current Mortgage Balance of $320,000
2.99% interest rate
Client estimated home to be worth $500,000 (appraisal gave $510,000)
Line of Credit balance $18,000 @ 5.2% interest rate
$7000 credit card balance @19.99% interest rate
KEY: Based on these numbers Sam was currently paying approximately $12,500 in interest / year and that wasn’t allowing him any room for the purchase of a rental property.
MY DEBT CONSOLIDATION RECOMMENDATION
In talking with Sam and understanding his goals, we decided to refinance giving him a new mortgage of $400,000, which would allow Sam to pay off his high interest debt (LOC and credit card) and free up funds necessary to invest in a rental property. Here are the details and why this made sense:
New mortgage of $400,000
Paid off old mortgage of $325,000 (including fees)
Paid off $18,000 Line of credit and $7,000 credit card
It also provided client with $50,000 cash for down payment on $250,000 rental property (which interest can be tax deductible).
NEW Mortgage payment of $1565 / month
KEY: Based on new mortgage (not including portion for investment) Sam now pays $8,500 in interest / year (SAVINGS OF $4000/year) and has a rental property that generates $19,200 in revenue / year.
Your situation is likely different then this example but it illustrates how we work through the numbers to help you make a decision that will help you realize your short and long-term financial goals.
Not sure exactly what refinancing is or how it works? Check out my blog on “what is refinancing” here: http://www.hwadvantage.com/mortgage-education/what-is-refinancing-how-to-access-the-equity-in-your-home/
Debt consolidation can save thousands of dollars in interest and improve cash flow. If this is something you think may benefit your financial situation please reach out to me. Together we can access your situation and based on the “hard numbers,” easily decide if it’s right for you.
Contact the HW Advantage today by filling out the form below or calling: 1-905-541-6961