Are you feeling the pinch of rising prices? If you’re thinking of ways to better manage your debt, one solution is worth considering: a mortgage refinance.

Through it, you can gain access to the equity you’ve built up in your home over time to achieve your goals. Not only can this help pay down high-interest debt faster, but it can also open cash flow for larger expenses, like home repairs and your child’s university tuition.

What is mortgage refinancing?

Mortgage refinancing is when you break and pay off an existing mortgage contract and start a new one. You can use a different lender or the same one—but it will come with new terms, interest rates and repayment options. This is typically done to consolidate debts, lower payments and cover larger expenses, like a down payment to get a loved into the market.

Some lenders will let you borrow up to 80% of your home’s estimated value. Let’s say, for example, your home is worth $750,000 and you have $400,000 left on your mortgage. If you subtract $400,000 (the amount you owe on your mortgage) from $600,000 (80% of the estimated value of your home), you’re left with $200,000 in equity that you could borrow.

Keep in mind: there are a few things to consider when refinancing a mortgage with another lender. Mortgage stress test, property appraisal lawyer fees, and paperwork are a few of the things you may encounter. You should also be aware that breaking a mortgage can mean being charged a penalty. Review your options with your advisor to find out what’s best for you.

Can it help with personal debt?

In short, yes.

Debt consolidation is one advantage of mortgage refinancing. The idea behind it is simple:

• you combine multiple high-interest debts into your lower-rate mortgage
• have one monthly, and typically lower, payment
• ideal for those saddled by high interest rates from credit card debt and personal loans

When exploring whether mortgage refinancing is a good idea, it’s always best to work with a trusted advisor who can provide tailored advice based on your unique needs, goals and financial situation.

What are the top advantages of mortgage refinancing?

• It can lower your interest rate. If your credit card interest rates sit around 20% and you aren’t paying balances in full each month, mortgage refinancing can help. Here’s why: since your debt is secured by collateral (your home), you’ll likely qualify for a lower interest rate as you’re deemed less risky to lenders.
• Cash in on your home’s equity. If you’re preparing for a big purchase or renovation to increase your home’s value, mortgage refinancing lets you tap into the equity you’ve built up to cover it. Plus: many property values have risen over the years, which can give you more equity.
• You may boost your credit score. By consolidating your debt into one easy payment, you can reduce your monthly expenses. Paying your bills on time is one of the most important things you can do to have a good credit score.

What are the drawbacks of refinancing your mortgage?

• You’ll have additional charges. Mortgage refinancing comes with several added costs, such as for home appraisals, early pay out penalties, and mortgage discharges—along with legal fees. Some of these fees may be worked into your refinance amount and your advisor can provide you more information on how this works.
• It could result in more debt. If your debt is in one loan, you may be tempted to start using your credit cards or lines of credit, which can lead to unnecessary spending. Creating a budget is an important step to help ensure that you stay on the right path. It may be worth having a conversation with your lender to see if reducing your limits can reduce temptation to spend, ultimately keeping you on track.

Unlocking your home’s value

Refinancing your mortgage can help increase cash flow and pay down high-interest debt faster. That said, it’s not the right strategy for everyone, so be sure to always speak with your financial advisor before making any significant changes.

Advice tailored to your needs

Ask us your questions and we’ll tailor our advice to you. Talk to us on the phone, or in-person at the branch. We here for you.