Finance Information

This week on my facebook page, Mortgages for Women.com Inc, I asked the question "what is the #1 reason people refinance their house?"  Most people suggested the number one reason to refinance was to consolidate debt.  The fact that it was #1 by a big majority even surprised me and I wonder if the media has anything to do with it?  If you are thinking of refinancing to consolidate debt here are a few things you should know.

1) It's going to cost you money.  Regardless how the ad spins it you need to plan to be out of pocket.  In order to refinance you need to break your current contract (all mortgages are contracts) and for that you need a lawyer.  If your lender has in house service that in house service costs money and they will break your old contract and register the new one just the same as your own lawyer would do.  You may also be asked to pay for an appraisal and of course there is the penalty for breaking your current mortgage contract. 

2) Get your eyes off the new monthly payment.  Don't be seduced by the new monthly payment.  There is a reason why you were able to pay off all your debts and end up with a lower monthly mortgage payment than you had before.  Only one of those reasons is the rate.  If you only had 15 years left of your mortgage and you roll all your debts together into a mortgage with 25 years to pay then of course your payment will be lower.  Best to pay attention to amortization schedules over monthly payments.

3) Get it absolutely right.  If you are going to refinance do it right.  Make sure you have a plan and budget going forward.  One of my favourite budget work sheets is on the Financial Consumer Agency of Canada Website.  Put some forethought into your refinance.  You will want to work out a plan that will get you back on track and keep you there.  There is not much point in refinancing debts like car loans into a payment with a 25 year amortization.  That car will be in junk yard long before you pay it off. 

4) If the advice your getting doesn't feel right it isn't.    Do as much homework as you can.  If you don't feel you are getting good advice listen to your inner voice.  You have to live with the fall out not the person approving your loan.

So why did the survey surprise me?  Most refinance loans I do these days are for home improvements.  I think I'm bad (or good) at discouraging people from refinancing to consolidate debt.  If you have any questions don't hesitate to email me.  I will send you a list of things you need to get together before you make the refinance decision.

Marcy

Toronto Mortgage Agent