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As I mentioned in my previous blog entry, house prices have increased in Cambridge over the last few years, so many people are borrowing against their houses to repay higher interest rate debts.
If your debts are very large, you may be considering bankruptcy. If you own a house, here's what you need to know:
If you go bankrupt in Cambridge, the trustee is required to recover the equity in your house. For example, if your house is worth $150,000, and the mortgage is $130,000, then your house has equity of $20,000. (I am over-simplifying this example, because real estate commissions and other costs would be considered in determining equity). If you went bankrupt, you would be required to either pay $20,000 to the trustee (to be distributed to your creditors), or you would be required to surrender your house.
If you have a house with no equity, then you would not lose it if you went bankrupt, provided you kept making your mortgage payments.
If your house has equity, but not enough equity to refinance your debts, you could consider selling the house, or you could consider a consumer proposal as a way to deal with your debts but keep your house.
This is a complicated area of bankruptcy law, so I suggest you contact us to arrange a consultation so we can review your situation in more detail.
The real estate market in Cambridge, Ontario has been strong for a number of years. If you bought a house a few years ago, it has probably increased in value.
If you have other debts, such as credit card debts, should you borrow against the increased value of your house in Cambridge to repay your debts?
The answer depends on the equity in your house, and the amount of your debts.
If you own a house in Cambridge worth $200,000, and have sufficient income, you would typically qualify for a conventional mortgage of 75% of the value of the house, or $150,000. If you currently have a $120,000 mortgage, it is therefore possible that you could borrow an additional $30,000 against your house, either as a second mortgage or as a line of credit secured by your house.
If you have $30,000 in credit card and other debts, this approach may make sense. You borrow against your house at relatively low mortgage interest rates, and use the money to repay your high interest credit card debts. Of course, if you have $60,000 in debts, this approach won't work.
In my next blog entry I will discuss whether or not you lose your house if you go bankrupt in Cambridge.
My conclusion: if you can re-finance and repay all of your debts, and still afford your now increased mortgage payments, a second mortgage is a good bankruptcy alternative. However, if your debts are too high, a consumer proposal may be an option.
Feel free to e-mail a question and we will help you review your options.
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SITE SPONSOR |
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This site is sponsored by Howard Hayes of Hoyes, Michalos & Associates Inc.
If you're having financial difficulties and live in the Cambridge area, call (519) 622-3773 today to meet with Howard Hayes or Douglas Hoyes, or complete the ask a question form to send us a message and we'll get in contact with you.
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