Refinancing To Manage Your Debts – Act Before April 19 for Maximum Value
The average Canadian owes $1.45 for every $1.00 they earn. This startling number emerged from the February, 2010 report on Canadian family finances from the Vanier Institute.
What’s more, debt loads are continuing to increase, despite the recession. Bankruptcy Canada estimates that the average Canadian adult is carrying a debt load of $40,000. That is double the amount they carried in 2000.
The organization then put that figure into context with a few pertinent questions: “Has your income doubled? Are you making twice as much today as you were earning in the year 2000?” For most of us, the answer to those questions is “no”.
How has household debt spiralled out of control? What is the impact? Most importantly, what is the solution? We’ll try to answer those questions here.
Why So Much Debt?
Low interest rates are one of the reasons we are seeing such high debt levels. As the recession took hold, governments pledged to maintain already low rates in order to encourage spending.
As Bankruptcy Canada points out, debt is not a bad thing if you can manage it. It is the ability to service a debt that counts and that is where many Canadians are currently having problems.
What is the Impact of Heavy Personal Debt Loads?
Clearly, too much debt puts a strain on households. Keep in mind that first number we cited – most Canadians owe $1.45 for every $1.00 they earn. People with heavy debts are constantly behind the eight ball. All it takes is one crisis to land someone in serious trouble. Job loss, medical problems, divorce – any of those situations can cause people to fall behind in debt payments and head toward bankruptcy.
In fact, there has been an unprecedented spike in the personal bankruptcy rate. Heavy debt loads, combined with our economic climate and the high unemployment rate, are the reason. In October 2009, the rate of personal bankruptcies had increased by 26% over the previous year.
What Can You Do About Personal Debt?
If you are a homeowner, you can take advantage of the equity in your home to consolidate your debts. Interest rates are still low, so you can refinance your mortgage at an affordable interest rate. Take out more than the amount owing on your current mortgage and pay off debts. Or, keep the same monthly payment, pay down more of your principal, and get mortgage-free faster.
You need to act fast though. As of April 19, 2010, the federal government is reducing the amount of money available through a refinance from 95% of a home’s value to 90%.
To learn more about your mortgage refinancing options, talk to a CMI certified mortgage broker today.
