Let's chat: 902-482-8808
My Mortgage Blog

Refinancing to avoid insolvency


This article is written by David Moffatt, a Senior Debt Relief Specialist with 4 Pillars Consulting Group locally in HRM, NS. He assists consumers in creating a plan to restructure their debt and relieves the stress that debt causes. Having personally assisted in restructuring more than $20,000,000 in consumer debt, David Moffatt is a leading expert in debt restructuring in Nova Scotia.


A popular strategy to restructure debts is to refinance your home to get equity out of your property. This is an extremely effective method of restructuring debt, especially when you have a good amount of equity. You can generally refinance up to an equity value of 80% if you still have good credit, or 65%, if your credit is poor.


So how does refinancing work? Refinancing works by obtaining a new mortgage to replace your existing mortgage. The mortgage amount you are able to obtain above and beyond your existing mortgage is the amount of cash you would be able to get from your property.


For example, if you owed $100,000 on your existing mortgage and you refinanced your property to get $160,000 (assuming your house was worth $200,000 and you had good credit) you would be able to walk away with approximately $60,000 cash. Continuing with this example, imagine if you had a $30,000 personal loan or line of credit costing you $650 per month and a car loan of $30,000 costing you $600 per month. You could use the mortgage proceeds of $60,000 cash to pay both of these off. This would significantly reduce your monthly expenses.


Let’s assume you bought your house for $150,000,  approximately 10 years ago. You have simply renewed your mortgage every time it comes up for renewal. You now only owe $100,000, at 3.99%. Your house is now worth $200,000, as per the example above. Your mortgage payment would be approximately $788 per month.


To get rid of your debt you go to refinance your property to $160,000 to pay off the loan/line of credit and car. Because interest rates have dropped, you are able to get the same interest rate.


A new $160,000 mortgage, amortized over a new 25-year term would cost you only $840.77 per month.


To get rid of $1,250 of monthly expenses with refinancing would only cost you approximately $53 per month.


It is obvious to see the power of refinancing as it comes to taking care of debt. Even if you had bad credit in this example you could still tap into approximately $30,000 of equity which would still make life significantly easier.


Some things to consider


Early payout penalties - depending on your mortgage you may have costs to break your existing mortgage. Talk to a professional about this prior to taking action.


Just because you can, doesn’t mean you should - If refinancing doesn’t solve your problem fully then you will want to tread carefully. It doesn’t help anyone, you, your family, the broker, or your bank if you apply a ‘band-aid’ solution that doesn’t solve your debt problem fully.


Interest rates - When it comes to mortgages, people seem to be very rate-sensitive. But just remember, if you are freeing up $500-1000p/m does an interest rate a few points higher make a bit deal at the end of the day? Probably not.




If you have equity we highly recommend working with a mortgage broker to determine your best refinancing options. If you don’t have equity, then we recommend you come to visit us at 4 Pillars. We believe that no consumer should have to struggle with debt and would love to hear that you avoided insolvency by refinancing.