Canada currently has around 4,779,508 cases of overdue mortgages in existence. Mortgage debt can destroy a household — late fees, bad credit scores, and possible foreclosures all add stress to working families.
As such, paying off your mortgage early is the best way of knocking that stress out of your life. In some cases, taking out a personal loan can be a great way of knocking out your mortgage payments early.
But, it’s essential to realize that this might not apply to everybody. In this article, we’ll teach you everything you need to know about taking out a personal loan to pay off your mortgage early.
Pros and Cons of Paying Off Your Mortgage Early
Before we learn how to use personal loans on mortgages, we should first discuss the benefits and drawbacks of paying off the mortgage early.
One of the most significant benefits of paying off your mortgage early is that it frees up your monthly cash flow. You can spend this income on other things, like retirement funds.
However, this pro is only valid if you pay it off without a personal loan. Otherwise, you are swapping one loan for another.
But it can make a difference when it comes to interest rates. If your mortgage has interest rates, then you’re also saving yourself potentially thousands of dollars in payments.
You also get a rate of return that is more predictable and the ability to tap the equity on your home if you need cash in case of an emergency. Finally, there is the pure peace of mind that comes with paying off your mortgage payments early.
Unfortunately, there are some cons you should consider too. For one thing, an early mortgage payment holds up most of your liquidity and net worth in your home, which takes longer to access.
A home is a non-liquid asset because it takes a long time to sell. As such, it may not be advisable to put a good chunk of your liquidity into an early mortgage payoff.
If you need money from your home in a hurry, in case of medical emergency or job loss, then it makes selling it much more difficult. But, if you don’t plan on selling your home, then it’s generally a good idea.
Get a Payoff Statement From Your Lender
If you decided that paying off your mortgage early with a personal loan is the best option for you, then you first need to figure out how much you owe. You perform this step by calling your mortgage lender and asking for a payoff statement.
A payoff statement is a document prepared by the lender, which shows the remaining balance on your mortgage.
They can also include information like the payment schedule, amount of interest, and early-payment penalties included in some contracts.
These statements include information on how to adjust your payment amount either before or after the specified date. You can retrieve a payoff statement in person or verbally from an agent.
Choose Your Type of Personal Loan
Generally, it’s not a good idea to take out a personal loan if the interest is higher than the rate of your mortgage. As such, it’s essential to know the differences between these types of loans so you can know which one works best for you.
The most common types of personal loans are unsecured and secured.
Unsecured personal loans are helpful because you don’t have to put down any collateral payment, like your house or car. But, they are contingent on a good credit score if you don’t want high-interest rates.
Secured loans ensure that you get low-interest rates. But you will need to put down your mortgage or car as collateral.
This loan means that if you can’t make payments, then the bank can seize your assets. As such, they are riskier if you fall on hard times financially.
Another type of personal loan is the fixed-rate loan. As the name suggests, these loans offer rates that remain the same over time. The fixed nature of them makes it easier to schedule and manage payments. But, you should expect higher interest rates for these types of loans.
Variable-rate loans are the opposite of fixed-rate — the change monthly due to fluctuations in the market. Some people dislike the rising and falling nature of these loans, but they are convenient in that you can borrow what you need.
For many people paying off a mortgage payment early, the best solution may be debt consolidation. This type of loan rolls up multiple debts into a kind of payment with one interest rate.
Debt consolidation does simplify things significantly, but it also leads to higher interest rates most of the time. If you want to learn more about the different types of personal loans, you can get, then check out our guide here.
Payoff Your Mortgage with the Loan
Before you start your new loan, make sure that everything looks good. After all, you don’t want to trade loans only to discover that you end up paying more on your new one.
Calculate the amount you’ll be saving with an early mortgage payment. Then, deduct from that any penalties for ending paying off your loan early. You also want to make sure that the interest rates on your loan aren’t higher than your mortgage.
Once you double-check, then you can pay off your mortgage. Most of the time, you complete this step with either a bank-to-bank transfer or by sending them a check.
Then contact your lender and ask them to send your mortgage discharge papers. Take your discharge papers to your local property record office and have them remove the loan. In some cases, your lender will take care of this step for you.
Use Captain Cash for Your Short Term Loans
If you need a personal loan for paying off your mortgage early, then Captain Cash can help.
We know that poor credit history prevents a lot of people from getting the loan they want, so we work with you individuals to figure out if we can help.
All we require is that Canadian candidates be 18 years of age, make over $1,200 per month, and not plan on entering a consumer proposal or declaring bankruptcy. If it sounds like we can help you, then visit our site and claim your cash today.