Debt Consolidation Challenges Ahead
“The Benefits of Debt Consolidation Through Mortgage Refinancing Are Still There, But Getting Harder to Come By”
There is no question in my mind that one of the best ways to escape the clutches of run away consumer debt and save your credit score in the process is by taking advantage of the equity in your home and refinancing your mortgage in order to payout or pay down your consumer debt.
This has long been a solid strategy to consider and undertake and will remain as such into the future. The challenge is that the road to accomplishing this is getting a bit more tangled and some of the benefit it slowly eroding.
On the benefit side, if you have been delaying a debt consolidation action through mortgage refinancing, the longer you delay, for whatever reason, the less interest rate savings you’re going to achieve due to the current trend of long term mortgage interest rates rising.
A one or two percent increase in mortgage rates may not seem like much when you’re consolidating a 19% credit card balance, but keep in mind that the higher rate is going to apply to the existing mortgage balance being paid out by the new mortgage as well as the consolidated funds. When you consider that many mortgage holders will also increase the amortization period on the new mortgage to make their cash flow work, small changes in interest rates can translate into tens of thousands, even hundreds of thousands of additional interest over time, depending on the amount of the new mortgage.
In terms of getting a debt consolidation loan approved and in place, the recent changes in the mortgage insurance rules have not only reduced the amount of the home value that can be refinanced from 95% to 90%, but the overall impact of the changes have made mortgage lenders more cautious overall and the process of getting mortgages approved has become more complex with lenders asking for more information to assess the application which takes more time to complete and doesn’t always result in the rates and terms you may be looking for.
For those with excessive levels of consumer debt that are not getting paid down, it still makes a great deal of sense to consider mortgage refinancing as a solution, but it makes even more sense get the debt consolidation process completed before more rate changes and mortgage rule changes come into play.
This is also one of the many instances where working with a mortgage broker can provide tremendous value working through all the twists and turns in the market right now.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel