You may be tempted to consolidate your credit card and other high-interest debt into a mortgage with much lower payments. Lenders now require the homeowner to keep at least 15 percent to 20 percent equity after cashing out. Today's debt consolidation mortgages are more conservative than those seen during the housing boom, when lenders allowed homeowners to refinance and cash out as much as 110 percent of the value of their homes.
This is usually people’s preferred option since mortgage interest rates are usually much lower than other loan interest rates, and mortgages can be amortized (paid) over 25 years.
This means you can arrange much lower monthly payments than with another type of loan.
"We were property-rich and income-poor," says Jo Ann.
The couple had refinanced six years before, but when mortgage rates dropped to historic lows in May, they saw an opportunity to eliminate their credit card debt by refinancing their home and rolling $25,000 of credit card debt into the loan.
Of the 10% of Canadians who refinanced their mortgages last year, 62% cited debt consolidation or repayment as the main reason for their refinance.
This is because consolidating high interest debt – like credit card balances and auto loans – into a low interest mortgage can save you thousands in interest payments.
To consolidate all of your debts, your first option would typically be to approach your bank or credit union and see if they can help you.
If you have a mortgage, you might look to see if you have enough equity in your home to consolidate your debt with your mortgage.
In order to determine if you can consolidate debt into your mortgage, you start by determining how much available equity you have.