Is Refinancing to Consolidate Debt the Right Move?

Saskatchewan’s real estate market remains strong with steady demand for housing and stable home values. Many households, however, are feeling the pressure of increasing interest rates, rising living costs and higher monthly debt payments. For homeowners carrying balances on their credit cards, personal loans or lines of credit, now may be a good time to review their current debts and consider whether refinancing to access home equity could help reduce interest costs and improve cash flow. 

What is Home Equity and how do I know if I have enough equity to help out my financial picture.
Home equity is the portion of your home that you truly own. It’s the difference between your home’s current market value and the remaining balance on your mortgage.

Equity can grow over time as you:

• Pay down your mortgage
• Your property value increases
• Make improvements that raise the value of your home

However, the best way to determine how much usable equity you may have — and what options might be available to you — is to speak with a mortgage broker. They can review your mortgage details, help you estimate your home’s value, and determine how much equity you may be able to access, because not all of the equity you have is eligible to be used to pay down debt.

Understanding your equity is an important step before considering strategies that use it to help manage cash flow or reduce debt.

Why Homeowners Are Feeling the Strain

In the past few years, Canadians have relied more heavily on unsecured debt. This makes day-to-day affordability a concern, even in a strong real estate market. Many homeowners are managing:

• Credit cards with interest rates of 18-22%
• Personal loans with fixed monthly payments
• Lines of credit with interest rates of 9-14%
• Higher variable-rate debts over the past few years

When multiple higher-rate debts combine, the monthly payment commitments and interest costs add up quickly. Accessing home equity may be a realistic opportunity to stretch the monthly budget. 

What Refinancing to Consolidate Debt Means

Refinancing allows homeowners to access a portion of their home equity. Those funds can then be used to pay off high-interest debts among other important financial priorities.

How This Can Improve Cash Flow

A homeowner with multiple high-interest debts like lines of credit, loans or credit cards, can easily accrue tens of thousands of dollars in debt over the years. At 9-22% interest, the minimum monthly payments can become overwhelming. If the amount of the debt can be incorporated into a refinanced mortgage, the interest savings can be substantial. In most cases, the monthly payment obligations decrease significantly, creating more room in the cash flow for typical living expenses. 

When it Makes Sense to Refinance

With Saskatchewan’s real estate market outperforming most other regions currently, property values have remained stable or, in many cases, increased. Many homeowners have built equity in their home, as well as market appreciation. This means they may qualify to refinance and access a portion of their equity (up to 80% of the home’s value). 

Homeowners feeling the weight of high-interest debt or payments that restrict their cash flow may benefit from reviewing whether their available equity could be used to help. However, refinancing should always be approached strategically. Important factors to consider include any mortgage penalties if the current mortgage is still within the term, current interest rates, and the long-term impact of restructuring debt. 

Speaking with a professional about the benefits and risks of refinancing to access home equity is the first step. A professional review can help determine whether the strategy makes sense for each financial situation, including the costs and long-term benefits. Reach out to an experienced mortgage broker to learn more about the options available.