Should You Roll Debt Into a Mortgage?
Consolidating debt into a mortgage is an exciting idea because it helps decrease the overall interest you must pay on individual debts.
24/08/2021
Consolidating debt into a mortgage is an
exciting idea because it helps decrease the
overall interest you must pay on individual
debts. It also allows you to be free from paying
several dollars per month. However, you must
understand that consolidating debt into a
mortgage can come with significant risks as
well. That is why you need to mitigate them on
time, so you do not have to face any issues in
the long run.
In this article, we will
help you learn about whether rolling debt into a
mortgage is a good idea. Also, we are going to
discuss some essential tips on how to do the
same. But before you move on in this article,
make sure to
click here for more relevant
information about debt consolidation.
How Does Consolidating Debt Into Mortgage Work?
Equity is present in most homes. It is the difference between the owned parts on the mortgage and the home value. For example, if your home costs nearly $200K but you only owe $125K on the mortgage, it indicates that your equity is worth $75K. Also, you must understand that the persistent pay down of your mortgage compels the equity to shoot up every time. Since $75K is a good amount of money, you can opt for it to pay down a few of your high-interest debts by consolidating them into a mortgage.
As you consolidate debt into a mortgage, it indicates rolling high-interest debts like non mortgage debt, payday loans, and credit card debt. It also suggested breaking the existing mortgage agreement. As soon as you have focused on all of these, the mortgage debt is highly likely to spike up by the non mortgage debt amount you rolled into it. Above that, a few thousand dollars extra for the cost of breaking the previous mortgage. But that is not all. It also includes housing corporation premium and potential Canada mortgage on the enhanced balance on the mortgage. It would help if you also remembered that the interest you are paying is likely to decrease your non mortgage debt.
Factors To Consider When Consolidating Debt Into Mortgage:
Several factors play an essential role when you want to understand whether or not consolidating your non mortgage debt into your mortgage is helpful for you in the future. Since every mortgage is distinctive in its way, you have to play wisely. For example, many people have to think twice about whether or not they are even eligible to opt for a new mortgage. This relies on the current rules that have been set around mortgages in the current generation.
It is also essential to regard the latest mortgage rate that you can receive on the renewal. Please make sure you map out whether it will be more or less than the current rate. If you notice that it is more, try to find out if the reduction in interest you are expected to pay outweighs the spike in the mortgage interest you need to pay.
Amidst all other crucial factors, it is significant to consider the cost of the penalty for breaking the existing mortgage. You may also need to determine information regarding the legal fees involved in this process and the recent CMHC premium. It is also essential for you to note that your property may require access which will cost you considerably.
These are some of the crucial factors that you have to keep in mind if you plan to consolidate debt into a mortgage.
Consolidating Debt Into A First Time Mortgage
Many people don't own homes already, but they are thinking about buying one. If you are one of them, this part of the content might be for you. As a result, you have the potential to consolidate your unsecured debt into your first-time mortgage. If you want to be eligible for this, you will have a lender evaluate your loan-to-value ratio. This will help map out the risks that you are creating as a borrower. Remember that LTV is the loan size compared to the home value you are planning on purchasing. That means if your LTV falls under a particular sum, your lender can permit you to roll high-interest debts into your low-interest home loan. Such a thing is an excellent method to escape the high-interest debts, but you also have to measure the downsides that might come with it.
What Are The Downsides Of Consolidating Debt Into Mortgage?
Consolidating your unsecured debts into a mortgage comes with significant benefits. We have already talked about how it can help you save up on lump sum money in the long run. But here is a list of downsides you need to keep in mind to ensure utmost safety.
1. Running Out Of Equity Is Inevitable
Many people think of their home as a resource that they can count on whenever they need it. They believe they can do this even for the pettiest things like throwing a lavish party or heading for a vacation. In many cases, you will also notice that they begin to count on their homes as an ATM. But what they fail to understand is that equity is not a resource. If it's over, you might be at a substantial financial loss in the long run.
2. Longer Debt Is Natural
If you roll other debts into your mortgage, it is natural that you will invest more time paying them off for a longer duration. This means that you will not be able to be debt-free immediately. It is going to take a lot of time.
3. You May Rack Up More Debt
Even after consolidating their balances into mortgages, individuals persistently count on their credit cards. As a result, they end up paying more on their mortgage and all in the pit hole with their credit card lenders all over again. That needs to be considered.
The Bottom Line
This article is to help you evaluate your decision more appropriately. Make sure you leave no stone unturned in doing that.