This is the practice of refinancing debts using one big loan to pay off multiple small, high-interest debts. This is often done to reduce miscellaneous fees and overall cost associated with the loan. People also consolidate because of the convenience of dealing with only one loan. It is important to note that the kind of loan chosen determines how much interest you will pay. Personal loans and credit cards, for example, are unsecured loans and for that, they are issued at high-interest rates between 19%-29% per month. Secured loans like mortgages are a cheaper option as lenders do not charge too high as there is equity for them to profit from. A loan with low-interest rates can be used in paying off other debts. Our team has been setting up debt consolidation loans in Markham for many years now and they are willing to discuss your unique circumstances.
Benefits of Debt Consolidation Loans
Those who are hard pressed to make all their monthly debt payments find it a good idea to take one big loan that can cover the rest. A registered mortgage typically allows people to borrow at the lowest interest rates from banks, credit unions, and private lenders. There is little uncertainty with such a loan as the lender can easily recover their investment by selling a property in default. You can borrow greater sums of money with a mortgage ($20,000 or more) than credits cards giving only a few thousand dollars.
Common Reasons for Debt Consolidation
When people decide to consolidate their loans into one, they have one or all of the following intentions.
- To Lower Monthly Charges: You can choose an extend payment term for this loan to reduce monthly instalments.
- To Reduce Overall Interest Rates: Mortgages charge lower interests than other loans.
- To Boost Credit Score: Debt consolidation loans are used to pay off personal loans, which left unpaid, will decrease credit score.
Methods of Debt Consolidation
Mortgage refinancing, first mortgages, and second mortgages are the primary methods we use to consolidate debts.
When to Use Mortgage Refinancing
This is the best option when rates on your existing loan are way higher than those for a replacement. Breaking a current loan leads to a fine of three months interest fees. Before deciding on mortgage refinancing you should be sure that lower interest rates will truly save you money considering all penalties and associated fees.
When are First Mortgages Useful
This type is only placed on properties without existing mortgages. Institutional and private lenders will provide loans to any property with enough equity. This is the least risky type of mortgage and usually, has lower rates than subsequent loans.
When to Use Second Mortgages
If there is enough equity left after the first mortgage, lenders will place a second. Second mortgages come at high-interest rates than the first loan but this is still lower than other types of debt. Using this option, you can ditch the existing mortgage and get money to pay off pending debts.
Private Lender Debt Consolidation Loans in Markham
Banks obviously charge the lowest rates on loans but not everyone is eligible for bank loans. Institutional lenders are very keen to avoid people with low credit score because it shows they might default on a loan. People who go out in search of debt consolidation loans have been unable to make all loan payments in the past and this action leads to a poor credit score. They only have private lenders to turn to when they need a loan. If you decide to get a debt consolidation loan from private lenders, you must contend with high interests on loans. It is already risky for a private lender to issue loans to people with bad credit so they try as much as possible to recover their investment through high interest. You are also expected to pay fees associated with setting up the loan. Our team has a vast network of private lenders and we assist our customers in getting many quotes from them. We go ahead to help clients understand the fees involved and advise on which option will save the most money over time.