Many Toronto homeowners get overwhelmed with debt. These sources of debt can include credit card loans, car loans, and personal loans. These kinds of debts tend to have very high interest rates. Payments to many different companies can also be challenging to manage. Getting a debt consolidation loan in the form of a mortgage can be a cheap and convenient method for paying off multiple expensive loans.
Outstanding household debt continues to be an issue. You can take steps to tackle ongoing monthly debt payments. By tapping into home equity, one great option is to take out a form of a second mortgage , sometimes also called a debt consolidation loan.
Debt Consolidation Defined
Debt consolidation is 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 costs to just one monthly payment. Homeowners can leverage their house for a second mortgage, avoiding the need for separate debt arrangements to consolidate.
A Toronto homeowner benefits from reduced interest rates on a debt consolidation loan compared to higher-interest debt. Credit cards, for example, can charge up to 21% interest. The monthly payments will also be lower and reduced to just one manageable payment.
Most Toronto-based lenders will offer debt consolidation second mortgage loans. These lenders include banks, credit unions, trust companies, and well-established private lenders.
Banks require strong credit and income for debt consolidation loans; Toronto private lenders approve based on home appraisal. Poor credit will not prove to be a barrier to private mortgage financing.
How Do Debt Consolidation Loans Work?
When an Ontario homeowner is at risk of falling into mortgage default by being unable to meet monthly housing costs, it may be worthwhile considering consolidating multiple household debts into one manageable monthly payment. By tapping into the existing equity in your house, a debt consolidation loan can provide the money to pay off existing debt and get rid of the pressure of trying to meet multiple monthly liability payments.
If a bank declines a consolidation loan, private lenders can overlook poor credit for Toronto homeowners. A private lender will look at different variables, including:
- The Loan-to-Value (LTV) will be calculated- based on a recent appraisal of your home. Private lenders lend up to 75% Loan-To-Value (appraised home value); in rural areas, it may be 65% due to location.
- The appraised value of your home- Mortgage amount based on current home appraisal; all calculations rely on this.
- The location of your home- Home location significantly affects loan calculation in real estate transactions.
- The current condition of your home- A private lender assesses property condition, including potential issues like water damage.
When Does Debt Consolidation Loans in Toronto Make Sense?
Carrying several high-interest monthly liabilities– If an Ontario homeowner struggles with high-interest debts like credit cards, consolidation may help. Consolidating payments with a lower interest rate is preferable if original loans carry up to 20% interest rates.
Having significant equity in your home—Ontario homeowners with considerable equity can utilize home equity to pay off high-interest debt. Homeowners that pay down their mortgage, will build up equity that can be used as collateral. Private mortgage lenders can only lend up to 75% of the property’s value.
Being at significant risk of falling into mortgage default– Explore all options to prevent mortgage default or arrears for Ontario homeowners. Opting for a private consolidation loan secures funds to cover mortgage and household debts under a single payment.
Mortgage Broker Store Can Help You with Consolidation Options
Poor credit and multiple debts do not need to stand in the way of second mortgage financing. Well-established private lenders are available to help Toronto homeowners reduce household debt by consolidating multiple liability payments.
At Mortgage Broker Store, we are in a unique position to be able to negotiate a debt consolidation loan option directly. We can also point you to a suitable Toronto private lender to help negotiate private mortgage financing.