Q&A With Gordon Pape: What’s the Most Effective Way to Pay Off Debt?

In this Q&A, financial expert Gordon Pape provides advice to a reader who is looking for a way to consolidate her debt.

 

Q – I have been reading about debt and investments. I have been to the bank to try to consolidate bills and mortgage. Searching the internet was confusing as there are too many options. The increase in interest rate also messed me up. Can you give me some advice? Any thoughts on reverse mortgages? – Rita K.

A – It sounds like you have a complex financial situation. Here are a couple of thoughts.

If you’re seeking to consolidate debt, a conventional mortgage or a home equity line of credit are probably the cheapest ways in which to borrow at present. That said, the interest cost is much higher than it was before the Bank of Canada started to raise rates. Whatever you do, I suggest you do not lock in a long-term rate. It appears interest rates will begin to drop later this year, so choose a variable rate loan.

Reverse mortgages charge a higher rate than a conventional mortgage or a line of credit, so the value of your home is eroded more quickly. The offset is you don’t have to repay the loan unless you move or die – in the latter case, the estate must repay. Also, if the money from a reverse mortgage is invested, the interest on the loan may be tax deductible. Ask a tax professional for help if you go that route. – G.P. 

Do you have a money question you’d like to ask Gordon? Send it along and then check out our Q&A section regularly to see if it was chosen for a response. Send questions to [email protected] and write Zoomer Question on the subject line. Sorry, we cannot send personal answers. 

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