With a new year approaching, many homeowners are noticing that while their property assessments are surprisingly high, so are their credit card statements!

Property assessments have arrived, and by now, we know we have more equity in our home than we had last year, and that’s a good thing.

Many now have the option of re-financing their existing mortgage – and taking a higher mortgage based on the increased value of their home. In most cases, you can borrow up to 90% of the value of your home for debt consolidation purposes*.

This can be a good strategy if you have outside debts with high interest rates. As per the Credit Counselling Society, the average Canadian family carries over $35,000 in revolving credit and the average credit card interest rate is 17%. It makes so much more sense to payoff a debt with a 17% interest rate and replace it with a mortgage at 5% - what incredible savings!

You can payoff all your debts and still have a lower payments, which would dramatically improve your cashflow position. Once you’ve paid off your debts, then you can tackle the task of paying down your mortgage with the extra cash you’ve generated.

Obviously, such a strategy does not apply to every situation and there are many factors to consider, like the terms of your existing mortgage and the fees involved. For instance, many lenders would offer you a blended rate on your re-finance and this would mean you wouldn’t have a payout penalty on your existing mortgage. However, in some cases, you may be better off to pay a payout penalty to your existing lender and get a more attractive rate with a different lender. Also, if your mortgage is high ratio (over 75% financing), in most cases you only have to pay an additional mortgage premium on the new money you are borrowing today as long as you keep your amortization as per the original application.

I would be pleased to work out some numbers for you based on your particular situation today. Together, we can establish if you would be better off with a higher mortgage and no other outside debts or if you would be better off just leaving it as is for now or getting a new line of credit instead, or possibly a second mortgage. Each situation differs according to your own individual situation.

I’m a strong believer in consolidation of debts though mortgage financing as long as you set out a plan to paydown your mortgage based on the savings from interest rates. You can still put money in your pocket and have only one monthly payment to make and tackle it as much as you can afford to without having to be miserable about it.

The key is to not go on using your credit cards (or taking out other loans) in a way that means you can’t pay them off in full on a monthly basis. If your budget is realistic, you should be able to meet your financial obligations monthly. I like to offer as long an amortization as possible to my clients and then you can exercise your pre-payment privileges. If something happens and you have a set back for whatever reason (accident, loss of job, etc.), then you can revert to your original lower payment easily until you’re back on your feet.

Linda Renaud is an Accredited Mortgage Professional with Invis and can be reached in Kelowna at 878-6706 or via e-mail at lindarenaud@invis.ca at any time to discuss your mortgage financing.