Credit card and loan debt with high-interest rates make managing your finances difficult. However, you may use your home’s equity as a homeowner. Merge your debts into a debt consolidation mortgage. But can this be done?
Let us understand if debt consolidation is a viable option and the benefits.
Understanding Debt Consolidation
The merging of many debts into one loan is debt consolidation. The term debt consolidation mortgage refers to a long-term loan that allows you to pay off many debts simultaneously. So after paying off your other debts, you will only have one loan to repay, as opposed to numerous.
It is always wise to consult a mortgage expert in Ontario to consolidate your debt.
The approach generally involves requesting a loan from your lender equal to or more than the entire amount you owe. Consolidation is especially beneficial for debts with high-interest rates, like credit cards. Typically, the lender resolves all outstanding debt and pays all creditors in one go.
Debt consolidation is an excellent method for streamlining money. However, before you withdraw your home investment or refinance your mortgage, discover more about debt management.
These six tips may help:
1. Find affordable interest rates.
Be aware of the cost of the loan. Before agreeing to a loan, thoroughly review the terms and conditions, including the term duration, costs, and interest rate.
2. Set up a budget.
You can manage your money, set financial objectives, and repay debts using a budget. Additionally, it allows you to set financial restrictions and to shop guilt-free.
3. Speak with a credit counsellor or financial planner.
You may create a budget and debt payback plan with the assistance of a professional financial adviser. Also, a bank branch adviser in your area would be helpful. So, you may develop sound spending practices with the assistance of a credit counsellor.
4. Pay more than the monthly limit.
To reduce your debt faster, raise your monthly payment amount.
5. Take precautions against the unexpected.
If your income is lowered or terminated, consider a strategy to keep paying off your debt.
6. Cautiously use credit.
If you are eligible for a mortgage, it depends on your credit rating. A high rating increases your chances of being accepted. Poor credit implies a lower probability of getting a loan approved. Pay your debts on time and avoid missing payments to enhance your score.
Can you consolidate debt into a mortgage?
If you have a mortgage, you might be able to leverage the equity you’ve earned to consolidate other obligations and effectively manage your expenses into a single monthly payment. You cannot combine the debt into a new mortgage if you are a first-time buyer. Therefore, you must already be a homeowner.
Almost any unsecured debt, like loans, hire purchase agreements, credit cards, store cards, borrowings, and student loans, may be combined into a current mortgage.
How Does Debt Consolidation Work?
Homeowners with an ongoing mortgage have three possible alternatives for using their mortgage to combine debts:
- A further advance
- Remortgaging
- A second charge mortgage
What Are The Pros Of Debt Consolidation?
1. Fewer monthly payments
By consolidating your outstanding debts into a new mortgage, you will have fewer monthly expenses and debt payments.
2. Specified end date
You might be repaying for decades if you merely make the minimum payment on a big credit card bill. Many loans (and mortgages in particular) have a precisely defined payment schedule specifying what you’ll repay when expected, how much would go toward the principal, and when the debt will end.
3. Lowered interest rate
Based on the market and your credit condition, your mortgage’s interest rate is likely to be lower than that of an unsecured loan. Moreover, it will be substantially lower than that of a credit card.
4. Interest deductions
You may be able to save money on taxes by debt consolidation using your mortgage. So this is due to the possibility that you are eligible for a mortgage interest deduction, which lets you claim a lower income depending on the interest amount you have spent on your mortgage.
What Are The Cons Of Debt Consolidation?
1. Years added to your debt
Most mortgage repayments are structured for 10-15 years. After consolidating the unsecured debt within your mortgage, you may not even notice it. However, you’ll be dragging it about for years.
2. Difficult to get credit
You can have trouble getting the best refinancing rates if you’ve already skipped a few repayments and your credit score has decreased. Moreover, these rates might cost you a lot in the long run, considering how long you will make payments on your new mortgage.
3. Less flexibility
If your circumstances worsen and you cannot afford any debt payments, you might consider filing for bankruptcy. If your obligations have been merged into an equity loan or mortgage, your bankruptcy choices may have restrictions. Moreover, it is possible you cannot clear your debts without losing your house. If you are contemplating bankruptcy, you should see an experienced attorney.
4. Your home is at stake
Always exercise caution when utilising your house as collateral regarding debt consolidation. Moreover, if you fail to make payments on your refinanced mortgage, you face suffering foreclosure.
5. Closing fees
The costs associated with most mortgages are either recovered at closing or included in the mortgage balance. Moreover, be aware of the charges associated with getting a loan.
Some Possible Alternatives To Debt Consolidation
If debt consolidation using your mortgage concerns you, you may talk with a Mortgage expert in Ontario and explore your options. Yet some viable options include:
- Personal loan: A personal loan enables you to borrow a smaller sum, often at a higher interest rate than mortgages for debt consolidation. However, since your property does not secure the loan, you do not risk losing it if you cannot make payments.
- Debt management strategies: If you do not qualify for a debt consolidation mortgage owing to poor credit scores on your credit history, a debt-management strategy may be a viable alternative.
Conclusion
If you want to consolidate your debts by using the equity in your property, it is necessary to seek the appropriate guidance from a professional. The qualified Mortgage experts at Greater Toronto Mortgages can help you.