Well you are in very good company! In a recent CAAMP (Canadian Association of Accredited Mortgage Professionals) survey prepared by Will Dunning (CAAMP Chief Economist) in May 2012, it is estimated that the majority of the 18% of mortgage borrowers who took equity out of their home in the past year did so for these purposes.
The average amount borrowed is estimated at $43,000. The total amount of equity take-out during this past year is calculated at $46 billion. Borrowing for renovations took #1 top spot at $17.25 billion. In second place, borrowing for investment purposes totaled $10 billion while, not far behind, debt consolidation was at $9.25 billion. The balance remaining was used for purchases, education, etc.
This sure makes sense as renovating your home not only adds value to your home but gives you enjoyment and satisfaction with a decorated new look. Come to think about it…about two years ago, my wife and I decided we needed to replace our tired, old sectional in our living room. It seemed to be a good time to replace our kitchen table and chairs as well. Anyway, before you know it, up comes the kitchen lino to be replaced with new tile and gone were the carpets in the living room, dining room, and family room replaced by new hardwood flooring. Then the stairs needed re-carpeting and finally the bedrooms too. We still have some more renovations in mind (my wife’s been hinting about new granite counter tops in the kitchen!) so I guess we’re in very good company too! Perhaps I should have tried to fix the sectional instead.
For those borrowing funds for investment purposes, my feelings on this is that one needs to work very closely with their financial advisor (for those investing in mutual funds, stocks, etc.). The markets have been quite unsteady lately and therefore having a professional financial approach and strategy with the help of a financial advisor is in your best interest. Others may be investing in a rental property which provides for a steady stream of income to pay off the mortgage over time. We have helped many clients with their purchases of rental properties over the years. They can be a great source of income in your retirement years!
In my opinion, refinancing your mortgage to consolidate your debts is a no brainer! Why pay 18%, or higher, in interest costs on your credit cards or have several monthly payments “choking” you when you have the opportunity to take advantage of your home equity. Refinancing your mortgage will increase your cash flow and reduce your interest costs. I know some of you may be keen on paying off your mortgage faster and the idea of refinancing your mortgage at a higher amount just doesn’t sit well with you. That’s good, but don’t let it be at the expense of keeping your high interest rate debts and hoping that they’ll be paid off some day. I have helped many clients understand the strategy of using your home equity for the purpose of debt consolidation. Seeing the relief on their faces once all their debts have been consolidated and cash flow improved (sometimes more than a $1,000 per month!) is heartwarming.
So, if you are thinking about renovating, investing, or wish to consolidate all your debts, why not give us a call today to discuss further. We’ll explain everything in detail to you (what you will save each month, help you select the right payment to fit your budget, and discuss ways to pay off your new mortgage even faster than your old one!). You can reach us in Kelowna at 250-808-9000 or toll free at 1-888-877-3535.