By Matt Paul
December 10, 2018
If you have a mortgage you have an asset that is worth money in the market if you were to move or decide to sell. It is also worth money to the bank that gave you the mortgage. The bank might value your asset at a higher value than what you would get if you sold it. Your monthly payments and any other special payments you make start to build equity that you can use with your bank or with other mortgage lenders to take out additional credit to use or pay off debts. This new credit using the equity of your home is tied to the asset value of your home and the asset itself. It is secured meaning if you move or sell or can’t pay the debt the bank is not left in a position where it is down on the list of creditors.
When someone defaults on their debt, secured creditors get the first position to be re-paid out of the sale of any assets. In exchange for this lower level of risk the banks and mortgage companies often charge lower interest to the borrowers on this type of credit product. You may be asking yourself, what is this guy talking about? Why should I care about secured or unsecured debt or equity in my home, I have all my bills and am paying more than my minimum payment every month. Well the reason is this. You can save thousands of dollars in interest payments per year by restructuring your higher interest credit card debt into secured equity based loans tapping into your home’s value.
The difference of paying 7 % a year on $10,000 and 19.99 % is striking. $1299.00 that is more money for your family expenses. This amount represents a partial payment on a nice trip to somewhere warm. More than that if you cannot pay your credit card balance in full this should be your first call when you realize that is the case.
Depending on how your mortgage is set up and depending on which bank you are dealing with it should be a relatively easy process to set up your line of credit. Don’t worry about setting off alarm bells, your banker knows about these products and likely receives commission or incentives to offer them. The bank or credit union will not proactively do a review of your debt structure or outside credit cards or loans however you should be proactive as it will mean savings and shortening your debt journey.
The author is a credit insider with over 9 years of experience inside Canada’s largest financial institution and founder of Your Debt Assist Inc. This is not financial advice this is for purely entertainment purposes.