If you’re a homeowner in the GTA, you are no doubt aware of the fact that home values have skyrocketed over the last few years. In March 2017 alone we saw a 33.2% increase in the average selling price when compared to the previous year, jumping from $688,011 to $916,567.
For those selling, this has meant great gains, and while some homeowners are ecstatic about the new equity these increases represent, some are left feeling somewhat house rich and cash poor, both for those with home in the area and those just getting into the Toronto market.
While homeowners are accumulating great equity in the GTA, many are also accumulating debt. In fact, research shows that Canadian families are currently carrying record debt loads – to the tune of an average ratio of debt to net household income of 167.3%. This has led many to consider their options and how they can use what they already have – homes with equity – to consolidate debt.
However, while that was an easy solution in the past, amidst this booming housing market the federal government has been systematically changing rules regarding insuring mortgages in an effort to protect the economy. One of these changes was to no longer insure refinance products.
As a result, the options for many homeowners who had plans to refinance to consolidate debt have greatly reduced. Since many lenders will now only lend up to 80% of a home’s value, the extra equity doesn’t free up sufficient liquid cash to deal with debt.
For those individuals sitting with more than 20% equity, things may seem rosy. However, for those looking to consolidate debt but unable to meet the 20% threshold, the situation is very different.
Fortunately, even with these new restrictions, there are different ways to deal with debt when you can’t refinance:
- Pursue an unsecured consolidation loan – this means new credit and interest and you must have good credit.
- Sell your home and use the equity to pay debt – most people don’t want to pursue this route, and we can obviously understand why!
- A consumer proposal that considers both your income and equity in assets – this can often reduce overall debt, lead to a single monthly payment, freeze interest and stop collection action being taken by creditors. In this scenario, an overall assessment of your finances is completed by a Licensed Insolvency Trustee to see if a consumer proposal is the right solution.
At Spergel, we can help you best understand and explore the options that meet your current needs. We have the experience that translates to real results, no matter the current housing market. Want to talk to someone about dealing with debt that has become overwhelming?
We’re here to help. Call 310-4321 toll-free for a free consultation.