Refinance mortgage pros and cons

[rokman]

Hi all,

Lurking around and searching the database for info but the last time anyone talked about refinancing their mortgage was in 2013 it seems. I thought it would be worth starting a new thread.

My case (looking for tips so thank you in advance if you have some!)

Bought our home in 2017 in SW Calgary for $477k. On accelerated bi-weekly payments. Currently owe $350k.

Earning good money as a sole proprietor; subcontracted through a geology outfit. Doesn't mean I'm good with my money; I am not. Terrible actually. Assets include:
- a rust-bucket truck with 440,000 kms.
- RRSP valued at $60k
- TFSA valued at $10k

Debts include:
Income tax: $50k (currently repaying it to the tune of $6150/month; ouch... but hey... terrible with money. Did well in the stock market in 2021 like many others did and tried to repeat it in 2022... now paying the price.)
Credit Cards: $12K
Lines of credit: $60k

And once 2023 taxes are filed, I'll owe $75k for sure. (I can hear some of you screaming "WTF MAN!" and asking yourselves tons of obvious questions for me.)

Anyways: here for advice. I had a meeting with a BDO member last week about this and her advice, starting from the best idea to the worst idea was:

1) ask your mortgage people if they'll refinance your mortgage... let me know their answer and what their rate is.

The mortgage folks said "YES" they will refinance our mortgage so we can use the equity we've built up to pay off all these debts. They'll waive the penalties as we are only 1 yr in on our 5-year fixed term (currently at 4.6%) and they offered a refinanced rate , 5 yr fixed, at 5.8%. Our payments go from $1162/month to $1411 (18% higher)

2) Ask other lenders if they'll approve us for a second mortgage in the 5-7% range

3) Ask my bank for a consolidated loan so I can pay off all the debt and then see what their interest rate would be to pay them back

4) Have BDO do up a consumer proposal - essentially they will reach out to all my creditors with a tailored offer to pay off my debts and then BDO will come at me with something in the realm of a $2300 to $2500/month repayment plan over the next 5 years. (the pros to this are: lowers my current obligations of $6150 / month so I don't feel so suffocated... The $6150 payments stop in November but then again, I'll be slapped with for sure another huge income tax and GST tab for 2023, of which I have been able to save $0 for thus far thx to me being a bad boy with the stock market; paying dearly for it. I don't need the riot act read to me; I need solutions and intel based on the tips from BDO... mainly focusing on solution number 1) - refinancing. I'm concerned because I fear I don't know all the repercussions if I opt for this.

5) Bankruptcy; after she learned of all my details, she said this was absolutely not an option for me. The other options are way more favourable and she emphasized I focus on them starting with the first option first. I was not in such dire straights to be a candidate for this #5 option so she left it completely off the table.

@Dean2 is clearly a savvy fella so I hope he chimes in here but am eager to hear what others with experience have to lend.

FYI: I've stopped putting money into the stock market. Everything is now focused on getting out of this debt.
THANK YOU and for the record: I'm not ashamed; I'm hoping this helps me and I'm hoping it may be able to help others if they're also struggling like me.

I'm married with two kids; my wifes name is on the mortgage but she is not on any of my TFSA or RRSP stuff; she's not on any of my credit card stuff or lines of credit or consolidated loans. Essentially, all the debt is my own doing. I pay all the bills for the house and I pay all the mortgage so she's on board with me refinancing because I'm paying the house off anyways. I get that there's going to be big opinions with this. Let's see how we can navigate.

[fishtank]

Refinance for 2 or 3 year terms lower than the five year rate ?

[britman101]

I will have other things to add later, but I would also consult with mortgage brokers as to what they can do for you. However, one word of advice I have for you is do not entrust everything with the bank. The banker is not your friend. They are a business and their bottom line is to turn over a profit. Bad debts and bankruptcies are things they do not like to hear about from their clients.

[CanuckShooter]

A friend of mine did a consumer proposal, got him out of his fix BUT completely tanked his credit rating for years. I'd avoid that route, and be aware that in some cases if you are setting up a proposal your creditors could force you into bankruptcy.

They aren't doing you a favour, only getting the most $ out of you they can.

[Dean2]

You have provided a lot of information, more than most are comfortable sharing on open media. That said, there is still not enough detail to provide you with a quality opinion. That and I don't give detailed, personalised input on open forums. What I post is either what I do personally or general information that is useful to many and publicly available to all, if you know where to look.

If you want to discuss your personal situation, PM me your phone number and I will give you a call and see if I can be of help.

[MK2750]

If you have a $350,000.00 at $1162.00 a month it might be your math that is the problem.

You don't have any savings when the money comes from unpaid income taxes etc. You only have the illusion of savings. I would cash those out and get on top of the outstanding revenue Canada debt. You can work with other creditors, those people can be ruthless.

You should speak to a decent accountant. Being self employed with a wife and 2 kids, a rust bucket truck, a ton of debt and an enormous tax bill is almost an oxymoron. A seasoned professional is well worth the added cost and literally does pay for himself and much much more.

If your credit lines are tied to your home there doesn't look like there is enough equity there unless your home has gone up in value a great deal.

The first key to a stable financial future is understanding where the money goes. Sounds stupid but it is true. The big bills are easy to look at and blame but it is the pennies not the dollars that generally screw up finances. Start keeping every receipt and not just the tax deductible ones, absolutely every receipt. At the end of the month sit down with your wife and find what costs can be eliminated or reduced. Sit down with your accountant and see what if any of these expenditures may in fact be tax deductible. With a humble attitude and zero sense of entitlement you will find hundreds if not thousands of dollars. It seems like hind site being 20/20 but your future depends on it. The first and most important thing to do when you find yourself in the hole is to stop digging.

Please beware of the "proposals" to reduce debt through consolidation. Banks love consolidation. It is like getting your cake and eating it too. It screws up your credit rating meaning thousands of extra dollars in profits for them and does nothing but prolong your debt burden.

I once decided to pay off a credit card that was a little out of control at about $10,000 and a used car loan that was at a higher rate than my credit line for about $3000. My line was at prime plus 1/2 IIRC. Anyway, several years later I went to pick up a new truck and they said I had a consolidation loan on my credit report. I bet that bank manager's ears are still ringing. Without my knowledge they had added that tidbit to my financials. I got it straightened out immediately but make no mistake consolidation is bank bankruptcy without benefits as far as your credit rating is concerned.

[HyperMOA]

No mater what you do, and what your payments turn out to be, you need to save an additional $6150 per month to cover 2024's taxes or this cycle will never end.

You might need an automatic withdrawal/transfer set up similar to your mortgage to an account that is not easily accessible to you.

I don't even want to know what CRA charges interest on late penalties at.

[Scott h]

Your option number #1 seemed a pretty reasonable, easy choice. A remortgage at only 1% higher than you are currently paying, with payments less than $300 a month more than you have now. The money saved on wasteful interest payments HAS to be socked away for the NEW tax bill you apparently know is coming. Having your credit cards, line of credit, and tax bills paid in full would allow you to sleep at night and hopefully learn from your mistakes.