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August 2010 - Is it good to increase your mortgage to Pay off your unsecure debts?

Is it good to increase your mortgage to Pay off your unsecure debts?

☳ by Adam Aspilla

First of all unsecure debts are those debts without collateral or security like: credit cards, loans without using your house, household items, a car or any property as collateral. Example of secure debts: mortgage on your house, car loan, and loans where your household items or any property used as collateral.

In a secure loan, a lender could seize an item (example: a car, boat, or a household item) as collateral if you default on your payments without a lender going to court of law to secure judgment. Except on a house mortgage where Power of Sale process would be observed.


When you experience financial difficulties and you are turned down by your bank for a loan consolidation, some of your options may be one of the following: credit counseling, consumer proposal or bankruptcy.

In any one of these options (credit counseling, consumer proposal or bankruptcy) only unsecure debts are included. Secure debts are not included unless you want to let go of the property used as collateral, it might be your house, car or household items.


Considering the foregoing, if your house has no much equity – not enough or barely enough to pay your unsecure debts, to increase your mortgage to pay off  (consolidate) your unsecure debts  may not be good for you for the following reasons:


First, if after you increased your mortgage, you decide to do credit counseling, consumer proposal or bankruptcy depending on the degree of your financial difficulty, your unsecure debts which you added to your mortgage could not be included anymore in any of those three options because they became secured debts.


Second, if you decide to sell your house, the proceed, after agent commission, legal fees and penalty if there is any, there might be no more money left for you as you already maximized your mortgage in paying your unsecure debts.


If your circumstance is similar to the above scenario, increasing your mortgage to consolidate your unsecure debts may not be good for you.


You need to consider like - other options above mentioned, before rushing to increase your mortgage to consolidate your unsecure debts, otherwise, when you are unable to pay your increased mortgage, you may lose your house unnecessarily as a house mortgage could not be included in consumer proposal or bankruptcy, unless you let go (surrender your house to the lender) of your house.



Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.