How do you consolidate your debt? 2020 turned out to be a lucrative year for the mortgage and real estate sector. Despite dire predictions by real estate professionals in Ontario and across the country, homeowners did not fall into mortgage arrears in large numbers. House sales did not decline, and the average house price did not drop as much as the forecasted 18%.
The opposite happened. In Ontario, the price of a single-dwelling property increased to an all-time average selling price of $932,222. This represents an 11.2% increase from this time last year when we were at the early stages of the pandemic. Similar trends were seen nationwide as strong federal measures directly supported the real estate and mortgage sectors.
Government funding for mortgage-backed securities, along with Bank of Canada rate cuts, boosted real estate appreciation in 2020.
What Is Debt Consolidation?
What is mortgage debt consolidation? Debt consolidation involves taking out a mortgage loan using your property as collateral to merge all debt payments into one monthly payment. Interest rates are usually lower than those on higher-interest debts such as credit cards, leading to reduced monthly payments.
If an Ontario homeowner has been turned down by a bank or credit union due to damaged credit, many well-established private lenders in Ontario will be able to negotiate different debt consolidation loan options despite a poor credit score.
Private mortgage loans that can help consolidate your existing debts into one manageable monthly payment include:
- Home equity Loans
- Second Mortgages
- Home Equity Lines of Credit (HELOC)
- Refinance principal or primary mortgage
Should I Consider a Debt Consolidation?
There are circumstances when debt consolidation is the preferred option, and some of these include:
Several high-interest liabilities– If an Ontario homeowner has too many high-interest debts to pay off monthly such as credit cards which can have up to 20% interest rates attached then consolidating these payments into one payment with a significantly lower interest rate is preferable.
Significant equity in your home– If an Ontario homeowner has built up considerable equity in their home, it is a good option to utilize this equity to pay off higher-interest debt.
Mortgage falling into arrears is a possibility– An Ontario homeowner should look at every option open to them to prevent mortgage default. Taking out a private consolidation loan is a good option to consolidate monthly mortgage and household debt payments.
Consolidation and Credit Scores
Contrary to what you may think, consolidating debt will not negatively affect your credit score. The opposite is true. Suppose you are easily able to make your monthly payment then your credit rating will improve. The lower interest rates associated with debt consolidation will also help to bring up your credit score.
What Are the Downsides to Consolidation?
- You may be required to use other assets in addition to your home as collateral for a low interest rate.
- If you can’t make your monthly consolidation loan payments, you risk losing your property, as it secures the loan.
- Late payments can negatively affect your credit score.
What Methods Can Be Used to Consolidate Debt?
When an Ontario homeowner requires options for consolidating debts, it would be beneficial to consider:
Second mortgages- Taking out a second mortgage on your home would provide money to pay off any arrears and the funds to comfortably pay household debts and the principal mortgage.
Home Equity Loans– Using the existing equity in your home would help to cover debt payments. Private lenders will require at least 20% equity in your home and assess the Loan-to-Value (LTV), which cannot exceed 75%.
Home Equity Line of Credit (HELOC)- Taking out a revolving line of credit that gives access to equity in your home is another option that represents one monthly debt payment
Debt Consolidation Loan– Using your home as collateral, a private lender can also negotiate a debt consolidation loan that would reduce debt payments to one monthly lower-interest loan payment.
How Do Debt Consolidation Loans Work?
If an Ontario homeowner faces mortgage default risk, consolidating multiple debts into one manageable monthly payment is advisable. By leveraging the existing equity in your home, various secured mortgage options can consolidate existing debts into one payment, using your home as security for the loan.
Private lenders will be interested in the appraised value of your home. The Loan-to-Value (LTV) will be calculated based on a recent appraisal of your home. Private lenders will lend up to a 75% LTV (75% of the appraised value of your home) and will look for at least 20% existing equity in your home. Interest rates for private debt consolidation loans typically range from 7% to 10%, with fees ranging from 3% to 6% of the total loan cost.
Mortgage Broker Store Can Help You With Consolidation Options
Don’t let debts get on top of you. Explore mortgage options that leverage your home equity to consolidate monthly debt payments effectively. At Mortgage Broker Store, we connect you with experienced private lenders who advise on debt consolidation, even with credit issues. Contact us at your convenience to set a time to discuss your unique financial goals. Email ron@mortgagebrokerstore.com or call 416-499-2122.
