To no one’s surprise on May 25, the central bank left its key interest rate unchanged at 0.5 per cent. While the bank said it expects the economy to “rebound”, it stopped short of discussing the likelihood that this rebound will be enough to keep overall 2016 growth on track with its previous goal of 1.7%. Many economists are not expecting Governor Stephen Poloz to start pushing up the bank’s overnight rate for at least another year.
While low interest rates and soaring regional housing markets continue to be the norm, Canadians are burdened with record-high debt loads, which have been rising since 2011. If you’re sitting with equity in your home yet can’t seem to manage your debt payments, perhaps refinancing is the answer, especially in this low-interest rate environment.
With credit card interest rates often pushing the 20% range, five-year fixed-rate mortgages in the 2.49% to 2.69% range and variable rates even lower, you may want to consider paying off high-interest debts. Like many financial decisions, you need to look at the big picture. Here’s what you need to know.
A refinance alters the terms and conditions of your mortgage; specifically you are increasing the amount of your mortgage to pay off debt. Your mortgage payment may or may not increase, depending on a number of factors, and you may incur a penalty to break your existing mortgage if you are refinancing midterm. Depending on your current mortgage you could be paying off the refinanced debt at a much lower interest rate, which could save you thousands of dollars in interest in the long run.
Here are some reasons to refinance:
|Decrease your overall monthly debt payments by using your equity to pay off those high-interest credit cards or unsecured loans, which can help you better manage your budget.
||You can refinance to purchase another property. Using the existing equity in your home can be a great way to buy a rental property which, if done right, can also make the interest you pay tax deductible.
|You could also take out some of the equity for investment purposes — an option that many homeowners consider this time of year.
|Or you may want to refinance to renovate.
Speak to a Professional to Understand Your Options
Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW.GUYTHEMORTGAGEGUY.COM