I would like to explain managing debt when buying a home. A common question I get from potential homebuyers is whether they can roll other debts into their mortgage when purchasing a home.
Can You Roll Debts into a Mortgage?
The short answer is no; you cannot directly roll other debts into your mortgage when buying a home. Lenders base their loans on the value of the property being purchased, and there’s no way to include other debts in that amount. However, there is a workaround for managing debt when buying a home: a cash back mortgage.
Cash Back Mortgages
A cash back mortgage is an option where the lender provides a certain percentage of the mortgage amount, usually between 1% to 3%, back to the borrower in cash. The idea is that you can use this money to pay off high-interest debts like credit card balances.
The primary benefit of a cash back mortgage is that it can give you some breathing room in terms of cash flow. Instead of being burdened by a $10,000 or $20,000 credit card balance at 20% interest, you can use the cash back to pay down the high-interest debt.
However, there are downsides. Lenders typically charge a higher interest rate on cash back mortgages. So, while you might save on high-interest debt, you will be paying more on your overall mortgage. This is a trade-off that needs careful consideration, if you need help deciding, please reach out, I would love to help.
If you decide to go with a cash back mortgage, it’s wise to use your extra cash flow to pay down your mortgage faster. You can do this by making extra payments or increasing your regular payment amounts. This strategy can help you save on interest in the long run and pay off your mortgage sooner.
Besides paying off debts, you can also use the cash back to cover other costs associated with buying a home, such as legal fees.
About Jason Scott, Edmonton Mortgage Broker
Looking for a personalized mortgage solution? As an Edmonton Mortgage Associate, I’ll be your trusted partner who will help you get the right mortgage for your family home or Investment property. I’m Jason Scott, and I’ll be your Mortgage Broker in Edmonton.
