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 dwindle and the average house price did not fall by as high as 18% as many had forecasted.
The opposite happened. In Ontario, the price of a single-dwelling property increased to an all-time average selling price of 932,222 thousand. This represents an 11.2% increase from this time last year when we were at the early stages of the pandemic. This trend was seen in other Provinces across the country as strong Federal Government measures were implemented in a direct effort to back the real estate and mortgage sector.
With significant Government funding of 150,000 Billion dollars put towards mortgage-backed securities coupled with cuts to the Bond rate and Overnight bank rate by the Bank of Canada, real estate continued to appreciate and housing sales accelerated during 2020. The Government also introduced the possibility for Ontario homeowners to defer their mortgage payments for up to 6 months to help offset strains on personal finances during the pandemic.
What is Debt Consolidation?
The Ontario real estate sector may have profited during 2020 but many households have suffered negative economic spin-offs as a result of job losses, reduced hours and Government imposed stay at home orders. According to Statistics Canada, consumer insolvencies rose 17% across the country and rose 15% in Ontario. In total, by year-end, there were a total of 7,658 consumer insolvency filings. Some Ontario homeowners may have damaged credit with multiple liabilities that have been hard to cover.
What is mortgage debt consolidation? Debt consolidation represents taking out a mortgage loan using your property as collateral and utilizing existing equity in your home to merge all debt payments (liabilities) under this one loan to reduce the payments to just one monthly payment. Interest rates will generally be lower than higher interest debts including credit cards and the monthly payments will be lower than payments for other outstanding liabilities.
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 payments include:
- Home equity Loans
- Second Mortgages
- Home Equity Lines of Credit (HELOC)
- Refinance principal or primary mortgage
How Do Debt Consolidation Loans work?
If an Ontario homeowner is at risk of falling into mortgage default there are ways to consolidate multiple household debts into one manageable monthly payment. By tapping into the existing equity in your house, several secured mortgage options can provide the money to pay off existing debt and consolidate all debts into one payment using your house to secure the mortgage 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 associated with private debt consolidation loans typically range between 7% and 10% with fees ranging from 3% to 6% of the total cost of the private mortgage loan.
A Loan-to-Value ratio for a property is equal to all mortgages on a property divided by the appraisal value of the property. If you own a home worth $1,000,000 and get a new first mortgage for $750,000 then your LTV ratio is 75% (i.e., 750,000/1,000,000)
Most banks and other A-Tier Lenders can loan up to 95% LTV provided that the borrower has a good income and credit score. Most non-bank lenders can lend up to 75% LTV but can overlook income and credit issues.
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 very good option to provide the funds to cover the monthly mortgage payments and cover household debts under one payment securing a loan against your home.
Will Consolidating Debt Lower Your Credit Score?
Contrary to what you may think, consolidating debt will not negatively affect your credit score. The opposite is true. If 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 Debt Consolidation?
- You may require to use other assets in addition to your home as collateral for a low-interest rate.
- Inability to make your monthly consolidation loan payments may result in losing your property as the loan is leveraged against it.
- 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 be looking for at least 20% equity built up in your home as well as assessing the LTV which can not 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.
Mortgage Broker Store Can Help You With Consolidation Options
Don’t let debts get on top of you. Explore the mortgage options that will enable you to reduce the number of monthly debt payments by utilizing the equity in your home. At Mortgage Broker Store we access a broad network of well-established and experienced private lenders who can advise you on the best debt consolidation options open to you despite credit issues. Contact us at your convenience to set a time to discuss your unique financial goals.