Canadians are dealing with a whole lot of debt.
In the first five months of 2021, national non-mortgage debt grew to $786.2 billion, largely due to credit card debt and other personal loans, according to Statistics Canada.
Federal COVID-19 subsidies, like the Canada Recovery Benefit, may have helped to curb those numbers. But with many benefits set to expire on Oct. 23, some experts believe personal debt could be on the rise in the fourth quarter.
For Canadians with a higher home equity (the property’s current market value minus the liens against it), there may be an easier way to deal with high-interest debt. In partnership with Northwood Mortgage, we take a look at how you can use your home to ease financial stress.
Consolidating debt into one low-interest payment
Whether you’ve shifted to credit card purchases, needed to buy a new vehicle or been forced to live on a line of credit for the last little while, debt adds up. That is in part because of high interest rates, which can extend to double digits.
If your non-mortgage debt is becoming burdensome, a mortgage broker may be able to help consolidate it under one low mortgage rate.
“Interest rates are at an almost record low, and real estate values are at a record high,” says Nick Da Silva, director of mortgage operations and mortgage broker at Northwood Mortgage in Markham, Ont. “Homeowners have all this extra equity they can capitalize on by borrowing against it, so now is a good time to look at finances and potentially consolidate debt on your mortgage at that much lower interest rate.”
To take advantage of debt consolidation, mortgage holders may have to break their current contract. Da Silva says a broker can walk you through the costs of breaking the contract, as well as any additional legal stipulations, to see whether it’s worth it for you in the long term.
“It seems like a step backwards to increase your mortgage by adding other debts, but you have to look at the overall big picture,” he explains. “If it helps your cash flow and allows you to put more toward the mortgage in a disciplined way, you could pay off debt faster.”
Taking control of debt before it’s too late
There are two kinds of debt: secured (where you put a house, car or other item up as collateral) and unsecured (debt with no collateral backing). If your unsecured debts are climbing, using your home equity to fix a bad situation before it gets worse can help secure your future.
According to George Doufexis, director of operations at Gem Debt Law in Richmond Hill, Ont., having high home equity is also a bargaining chip for borrowers in terms of negotiating with creditors and potentially lowering the overall amount you owe.
“By accessing some of your available equity, you turn credit cards and loans that are destroying your credit around and close it off for less money,” he says. “That makes it easier to repay down the line, but the alternative is people going bankrupt. Or losing their homes. Or getting into a hole that they’ll never get out of.”
No matter how bad your debt may be, Da Silva says now is the time to tackle it head-on, especially with the future uncertain as doctors warn that provincial reopening plans may need to be paused amid a fourth wave of the pandemic.
“You’ve got the perfect storm,” he says. “There’s great equity in people’s homes, a low interest rate, and it doesn’t matter if it’s the bank, alternative lenders or private lenders — money out on the street right now is very, very cheap. That means this is the time to make the move to consolidate.”
For more information on how to consolidate debt in a mortgage, visit Northwood Mortgage.