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When to Consolidate your Debts using Equity of your House

There are homeowners with big equity on their houses yet loaded with debts with high interest rates like: credit cards, personal loans, and other unsecure debts.

Most of them could not pay the full amount owing when come due. They only pay the minimum monthly payments, oblivious that minimum payments are practically applied to interest only with annual interest rate, up to 29.99% on some credit cards.

Their common philosophy (reasoning) is that they don’t want to increase their mortgage, so that when they retire the balance of their mortgage would be substantially reduced if not paid in full. That is of course wise and logical.

However, they don’t realize with high interest rates they are paying, they could not get out of debts for years even during their retirement time, for the minimum payments are applied to interest and almost nothing applied to principal.

Whereas, should they choose to consolidate their unsecure debts using the equity of the houses, they will be only paying annual interest rate as low as 1.54% on a fixed rate, first-mortgage and 1.60 % annual rate on a variable rate mortgage. These interest rates are at the time this article was written. These low rates are from primary lenders like: major banks and trust companies.

Since they pay only minimum monthly payments, when they retire they will carry with them their unsecured debts with exorbitant interest rate. With income from pensions only, it would not be easy to meet their monthly obligations like: food, clothing, utilities, transportation, mortgage payments (if there is still outstanding balance) plus payments for the unsecure debts.

No wonder, the writer has clients who are retired with financial problems, despite having big equities on their houses, and no peace of mind. Why no peace of mind? Because creditors and collection agents are hounding them for they defaulted their payments on their unsecure debts.

Some of their creditors already filed cases in the courts of law to enforce collection. Should they continue not to pay the outstanding balances owing, after their creditors secured judgment(s), creditors could register liens against the title  (ownership) of their properties.

When these happen, the liens registered against their properties become like mortgages for they could not sell, nor refinance the existing mortgage without paying in full the amount of liens registered plus legal fees and expenses incurred by creditors in the collection process,

With the foregoing realities, homeowners have no choice but to consolidate their debts using equity of their houses, otherwise, creditors with court orders, could takeover their properties and sell said properties through Power of Sale – that is to the highest bidder.

Usually and unfortunately, properties sold by Power of Sale, are lower than the market value by about 5% to 10%, for creditors are not concerned of homeowners’ welfare. They are only interested to collect the outstanding debts in full.

The above scenario could be prevented when homeowners consolidate their unsecured debts, using the equity of their houses at the time they could not afford to pay the full amount of unsecure debts when due.

by Adam Aspilla

Adam Aspilla operates the Debt Clinic of Canada Inc. for more than 30 years.  He was a former financial planner, a former mortgage broker, and the author of the book, You Can Negotiate All Your Debts.  He also writes another column, “Biblical Perspectives” in this paper. For a free initial, expert, professional and confidential financial consultation on your financial issues like: Debt Consolidation, Credit Counseling, Consumer Proposal, Bankruptcy, securing 1st and 2nd Mortgages and Mediation to resolve Financial Dispute to save time and money going to court, call 905-970-0439 or visit www.debtcliniccanada.ca


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