The average price of a home in Canada, especially those in Vancouver or Toronto, has been good in recent years. If you’ve been lucky to buy a house before the real estate boom, your investment has happily worked for you and you must have a lot of equity in your possession. The good thing about real estate equity is that it can be used to pay off high-interest debt, such as for credit card or consumer debt.
What are your options?
If you want to pay off unsecured debts and you have a fair amount of equity with your home, you have three options available:
- The most obvious is to sell your house and pay off your debts by handing over your equity money
- If you are not ready to sell your home, you can still use the equity of it and put the funds with a debt consolidation loan. This will consolidate your debts into one debt that will have a better interest rate and be easier to manage
- You could also consider the consumer proposition depending on the severity of your debts
None of these decisions should be taken lightly. Each option comes with these pros and cons. In order to see in more detail what each of the options has to offer, you can make a cost-benefit comparison to help you. Here is an overview of the three options.
Can you afford to keep your house?
The first step is to take a look at your budget and make sure you can afford your home and mortgage payments. Establish the real causes of your financial problems. It is possible that you have problems with your mortgage payments because of a less obvious problem, such as being temporarily out of work. If you have found a new job and your income is back to normal, selling your home is not really necessary.
It is also possible that you have other expenses or that your income has decreased following a change of job. After re-evaluating your budget and realizing that your home is no longer a reflection of your income, you should sell it or reduce your space.
Will the sale of your house be sufficient?
You could be in a position where you can keep voting house but still want to sell it to pay off all your other debts and start over. This option is only good if you have enough real estate equity to pay off your debts.
Let’s say you have $ 50,000 of credit card debt. By selling your house, you repay $ 40,000 with your equity. You will have to decide if selling your house and relocating yourself is worth it. Will you be able to sell your house, relocate and save enough to pay off the remaining $ 10,000 on a realistic time scale?
It works the same way with a debt consolidation. If taking a second mortgage on your home would not pay off all your debts, this is not necessarily your best option.
Can you manage your debts for yourself?
If after doing your calculations and realizing that selling your home or consolidating your debts is not enough to pay off all your debts, you should consider the options that will cover your debts entirely. Filing a consumer proposal could be an option. With this one, you will work with a licensed insolvency trustee who will create your proposal and present it to your creditors. The goal is to have the approval of your creditors to repay only a portion of your unsecured debts. You will repay the agreed percentage and they will consider your debt paid.
Consumer proposals are often favored to allow the consumer to keep his goods, for example, his home. If you want to keep this one, this is a great option. Another option would be to sell your home and use its equity to repay the amount that your creditors agreed in your proposal.
Choose the best option
If your debts are serious and you intend to sell your home to pay them back, you should seek the help of a professional. The first meeting you will have with a licensed insolvency trustee is always free. They will be able to advise you and guide you to the best option according to your financial needs.