Using Home Equity to Consolidate Debts | Refinance Your Home or Get a Second Mortgage
What does it Mean to Use the Equity in Your Home to Pay Off Your Debts?
Very simply, home equity is what’s left when you subtract what you owe on your mortgage from what your home is worth.
For example, if someone owes $220,000 on their mortgage and their home is worth $300,000, it is said that they have $80,000 of equity in their home.
Sometimes, borrowing against the equity in your home might make sense. In our example, this would mean taking out a loan or increasing your mortgage to give you some of that $80,000 in cash. Due to Canadian mortgage lending rules (video), you aren’t able to borrow the whole $80,000, but only a portion of it. Here is what the new mortgage rules mean in layman's terms.
Lots of Canadians do borrow against the equity in their home. However, in the last number of years, many people have depended on doing this as a way of making ends meet. Now their bad habits have caught up with them.
Using your home as your personal ATM can leave you owing more than your home is worth, if property values level off or decrease. Furthermore, looking forward to ending your working years when you still have a substantial mortgage to pay, might not be realistic.
Rather than possibly being forced to sell your home to pay off your debts, get help considering your other debt consolidation options. Our Counsellors are happy to help you find an option that will work best for you.