Equifax released a recent report that shows Canadians are starting to use their credit cards to pay for groceries and fuel. This trend indicates that people are using credit to cover their everyday living expenses because their income and savings are no longer enough. I would caution you against increasing credit card debt since the interest rates are significantly higher than mortgage interest rates and can leave you in a downward spiral of trying to get out of debt in the future.
Maybe refinancing your home or applying for a Home Equity Line of Credit from your current lender or getting a second mortgage could be options to get through this tough time.
Refinancing Your Home
HOW MUCH CAN I GET?
Whether it’s for some new furniture, some house upgrades or to cover some monthly costs, the mortgage rules allow a maximum amount of up to 80% of the appraised value of your home to be available for a refinance. If you qualify, the rates will not be the advertised rates that you see from major lenders. Typically, the rate for a refinance mortgage is about 0.5% – 1% higher than the advertised rates on a 5-year fixed term. You also have the option of getting an extended amortization of 30 years to help offset the higher monthly payments. The longer amortization may also help with having to qualify the payments at 2% over the interest rate you will pay (stress test).
WHAT IS THE COST?
If you are refinancing your first mortgage and it is not time to renew yet, you could look at the option o getting a Home Equity Line of Credit from your current lender to top up the mortgage amount registered on your home.
If that option does not work, you can look at refinancing the first mortgage. There will probably be a penalty. The amount of the penalty will vary so your best option is to call your current lender and ask what the penalty would be to payout the current mortgage. The other possible costs associated with refinancing a first mortgage is an appraisal (Cost around $450) and legal fees to discharge the current mortgage and register the new mortgage (Cost around $1,500).
WHAT IF THE PENALTY IS TOO HIGH?
In rare cases, you may need to consider looking at a private mortgage in a new first mortgage position or getting a private second mortgage. Private mortgages in first position are usually at higher rates (around 10% plus fees). Private mortgages in second position are even higher at 12% – 15% interest plus fees. However, there are some private lending options that offer lower rates with a higher fee.
WHAT IF I AM A SENIOR AND DON’T HAVE ENOUGH INCOME TO QUALIFY?
If you are over 55 years of age and have limited income and owe less than 50% of the value of your home, you may want to consider a CHIP Reverse Mortgage. This option has become the best choice for some clients that have lost their part-time jobs. Please contact me for details regarding your specific situation to make sure it is the best option for you.
While I don’t always recommend a refinance; in specific cases, it may be your best financial option to get through a crisis instead of running up your credit cards and hurting your credit score. Getting good advice from a Mortgage Broker is the best first step to make when you are considering the refinance option.
If you have questions about how a Purchase Plus Improvements Mortgage could work for you or are considering taking this route for your next home, please do not hesitate to reach out to a Dominion Lending Centres mortgage professional for expert advice!
