This is the process of refinancing one’s debt using a loan to pay off multiple small debts. When you have too many small loans you end up paying a higher overall interest rate and increasing miscellaneous costs associated with the loans. It is more convenient to make a single monthly payment as opposed to multiple payments. It is important to understand that interest rates for different loans depend on the type of loan taken. Unsecured debts like credit cards and personal loans charge incredibly high interest between 19%-29%. A secured loan, like a mortgage, attracts lower interest rates which is suitable for paying smaller loans. We have a team of specialists with several years of experience setting up debt consolidation loans in Toronto and they are available to discuss your situation.
Advantages of Debt Consolidation Loans
Many people who struggle with monthly loan payments can turn to debt consolidation loans in Toronto. A registered mortgage will generally allow you to borrow at lower interests from both the private and banking sector. These are some of the least risky loans for lenders as they can easily recoup by selling property in case of non-payment. With a registered mortgage, you can borrow lump sums in excess of $20,000 whereas a credit card will only get you a few thousand dollars.
Common Reasons for Debt Consolidation
The following are some of the objectives of people when they consolidate their debts:
- Lower Monthly Fees: It is possible to elongate the repayment term so that monthly payments are lower.
- Reduced Interest Rates: The interest rates on a mortgage are significantly lower than those for other kinds of credit.
- Boost Credit Score: Left unpaid, credit cards and other loans will dent your credit score. You should take a debt consolidation loan which is affordable and pay off those loans to protect your overall credit score.
Methods of Consolidating Debt
This can be done by refinancing existing loans or simply setting up a new first or second mortgage.
When Can You Rely on Mortgage Refinancing
The best time to use this is when interest rates on the current mortgage are higher than those of a replacement loan. Ending an existing mortgage before the deadline triggers a three-month penalty in interest fees. The decision to refinance a mortgage should only be made if the lower rates will eventually save you money after you have factored in penalties and fees.
When First Mortgages are Useful
These are loans placed on properties without existing loans. Many lenders are willing to extend loans to a property with enough equity. The first mortgage poses little risk compared to other types; which is the main reason for lower interest rates.
When Can You Use Second Mortgages
If there is an existing mortgage on the property already, you can place a second loan on the property. The lenders must ascertain that there is sufficient equity and borrowers must contend with significantly higher interest rates. It allows you to be rid of the existing mortgage and use the money to pay off other expensive loans.
Private Lenders for Debt Consolidation Loans
Institutional lenders give the best interest rates on loans but not every person qualifies for a bank loan. People looking to consolidate their debts have typically failed to pay loans in the past and want to prevent escalation of their situation. Banks and institutionalized lenders in Canada require a credit score more than 550 points to consider any loan application. The score is taken as a real measure of a client’s credit worthiness and unfortunately, many customers are left out of the attractive loans. The alternative is private lenders who are willing to lend those who have been rejected by banks.
These lenders have to protect themselves from the risks posed by giving loans out to people with bad credit. This, they do by charging higher interest rates than banks and leaving fees associated with the mortgage to the clients. Our team has a vast network of private mortgage lenders, and we can help our customers get several quotes from them. Our officers will help you understand fees associated with every quote and further advice on the one we feel will save the most money over time.