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It’s not because we are poor money managers, rather it’s often caused by those little emergencies which tend to crop up. While we do everything we can to have money in reserves sometimes it’s just not enough.
Before you know it, the monthly payments become overwhelming. In most cases it’s not because we accumulate a significant amount of debt, rather it’s caused by the interest rate we’re paying on those “quick cash” plans like credit cards, fast loans, etc which can be as high as 20+%.
So can a debt consolidation mortgage work? You Bet!
Let’s take a look at an example.
Bruce and Lynn have a home which is worth $210,000 and a mortgage of $120,000. At an interest rate of 5.25% and a 25 year amortization period, the monthly mortgage payments are $715(rnd).
Bruce and Lynn also have a credit card balance on two credit cards of $7,000. The minimum monthly payment for both of these cards is $350. Lets also say that they have additional debt of $4,500 resulting in a payment of $225. Their total debt including the mortgage is $131,500 ($120,000 + $11,500) while the total of all monthly payments is $1,290(rnd).
Here’s how a debt consolidation mortgage can help.
Lets assume that Bruce and Lynn have been making mortgage payments for a full year and have 24 years left on their mortgage. Their outstanding balance after 12 mortgage payments is $117,594. Interest rates are still at 5.25%, the same as they were when they first took out their mortgage. Bruce and Lynn would now like to consolidate all of their debt into one simple monthly payment.
With refinancing, the new mortgage amount would be: the outstanding balance of the existing mortgage plus the total of all other debts ($117,594 + $11,500 = $129,094). Based on an interest rate of 5.25%, the new monthly payment would now be $771.
The saving would be a whopping $520 per month. Not bad...
|
Before Debt Consolidation |
After Debt Consolidation |
|
| Mortgage Amount |
$120,000 |
$129,094 |
| Mortgage payment |
$715 |
$770 |
| Credit Cards |
$350 |
$0 |
| Other Payments |
$225 |
$0 |
| Total payments |
$1,290 |
$771 |
| Payment Savings |
$520 |
Debt consolidation mortgages are a great way to help lower those monthly payments and give you the breathing room you need.
If your think this might be a viable option for you, give us a call or fill out our debt consolidation mortgage application and a friendly member of our Mortgage Team will explain more of the benefits of our a debt consolidation mortgage.
Suggested Resources:
- Canada mortgage calculator
- Glossary of Canadian mortgage terms
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