When Mike and Suzanne sat down to look at their finances, the mood was tense. Between raising two small children, juggling careers, and managing the costs of everyday life, their debt had quietly crept up over the years… and it was costing them a small fortune: 

Debt Type Balance Owing Interest Rate Monthly Payment
Credit Card $20,000 19.99% $333 (interest-only)
Car Loan $30,000 6.00% $850
Line of Credit $35,000 9.99% $291 (interest-only)
Personal Loan $18,000 8.00% (4 yrs left) $440
Total Payments $1,915/month

 

In addition to their mortgage payment, they shelled out $1,915 each month to cover the minimum payments on the debt, which was the maximum they could afford to pay. And most of that was going toward interest, not the actual debt. For that reason, they were barely making a dent, leaving them feeling stuck and frustrated. 

As their mortgage was coming up for renewal in a few months with $575,000 owing, they contacted us to find out how they can maximize their savings. That’s when we tailored the perfect strategy for their specific situation. 

 

The Lightbulb Moment

Instead of renewing their mortgage as-is, we showed Mike and Suzanne how they could refinance at renewal and use their home equity to wipe out the debt.

By consolidating everything into one mortgage at a new rate of 4.04%, they could simplify their finances and drastically reduce interest.

We added the $103,000 of outside debt to their mortgage, bringing the total to $678,000, amortized over 30 years.

If they had just refinanced the $575,000 outstanding balance to a 30-year amortization to keep their payments low, the payment at renewal would have been $2,747.26. But that would have left them with the $1,915 minimum monthly payment on their debt for a total of $4,661.80 per month. 

By consolidating the debt into the new mortgage, we’ve knocked this down to $3,239.38 per month, increasing their cash flow by $1,422.42 per month. 

Debt Payment Before  Payment After 
Credit Card  $333.17 (interest only)  $0
Car loan  $850 $0
Line of Credit  $291.37 (interest only)  $0
Personal Loan  $440 $0
Mortgage $2,747.26 $3,239.38
Total:  $4,661.80 $3,239.38
Difference:  $1,422.42

 

But isn’t this just prolonging the debt by stretching it over 30 years? 

This would be the case if we just left it as is. But we’re not going to do that. We’re not just arranging a new mortgage for Mike and Suzanne… we’re providing them a strategy as well. We advised for them to use their prepayment privileges to increase their mortgage payment by the $1,422.42 difference, leading to them making the same payment towards their mortgage as they were to the mortgage and debt if kept separate: $4,661.80/month. 

 

The Result?

The interest on all their debts have been reduced to 4.04%.

Their payments started attacking principal right away… no more interest-only minimums.

No more juggling multiple payments 

The original $103,000 will be paid to zero in approximately 7 years. 

If they maintained the increased payment at the same rate for the life of their mortgage, they would be mortgage free in 16 years 9 months. This is a hypothetical situation for illustration purposes only as it’s not realistic for the rate to remain unchanged for the full life of their mortgage, but it gives you an idea of how powerful prepayments can be. 

 

Final Thoughts

Using home equity to consolidate debt isn’t just about reducing your interest rate… it’s about gaining control. When your mortgage is up for renewal, there’s no penalty to refinance, making it the perfect opportunity to simplify and supercharge your finances.

Want to explore if this strategy works for your situation? Contact us today for a personalized refinance review that could potentially save you thousands.