Consolidating your debt into a mortgage puts more money back into your pocket.
Debt Consolidation Mortgage
Debt Consolidation
Mortgage debt consolidation is refinancing your home to take out one loan to pay off multiple high-interest debts. Usually, this helps individuals with high consumer debt. Consumer debt is usually charged higher interest rates over 20%* on loan products like credit cards, payday loans, and other non-mortgage debt. The benefits of a consolidation mortgage are a lower interest rate and only having to manage one payment.
There are options to leverage your home’s equity to pay off high-interest debt, even if you have bad credit. Homeowners with equity and first-time homebuyers with bad credit can access debt consolidation loans.
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What to consider with a Debt Consolidation Mortgage
Advantages of Mortgage Debt Consolidation
There are many advantages to a debt consolidation mortgage
- Consolidate into one monthly bill instead of multiple bills
- Save money by consolidating debt into a lower rate mortgage
- One of the best low-interest borrowing options in the market
- Live stress-free and get rid of high debt and bad credit
- Financial setbacks happen, mortgage consolidation can help start over
- After debt consolidation, financial freedom will provide a sense of relief
- Focus on the future and plan for the long term
Disadvantages of Mortgage Debt Consolidation
There are disadvantages to a debt consolidation mortgage
- A debt consolidation mortgage may take longer to be completely debt-free
- Reduced access to equity when you may need to access it for life events
Example of high-interest rate credit card vs low-interest-rate debt consolidation mortgage payments
Debt | High interest rate credit card 20%* | Low Interest rate consolidation loan 3%** | Monthly savings amount |
|---|---|---|---|
$30,000 | $6,000 | $900 | $5,100 |
$100,000 | $20,000 | $3,000 | $17,000 |
$300,000 | $60,000 | $9,000 | $51,000 |
* moneysense.ca
** The mortgage debt consolidation example is based on a 5 year fixed conventional mortgage with an APR of approximately 3.3% (not including closing costs) bankrate.com Learn more about how APR is calculated at taxtips.ca
Interest rates are a major factor in managing personal finances and mortgage debt consolidation. It’s a way to help improve a financial setback while leveraging home equity built over time.
Factors to consider
There are many factors to consider when deciding if a debt consolidation mortgage is a right option. Lenders, like banks and private lenders, review mortgage applications for:
– credit history – financial stability – home equity – proof of income
Mortgage brokers and agents can help determine if consolidating high-interest loans such as credit cards and car loans into a larger mortgage is suitable. Contacting a mortgage professional to review non-mortgage debt for loan consolidation options is beneficial. Mortgage experts have worked with borrowers in situations with high debt levels, bad credit or are self-employed to provide alternative lending options.
Leveraging Home Equity for New or Existing Homebuyers
Homebuyers can qualify for debt consolidation leveraging mortgage and home equity. Even first-time home buyers can be qualified for mortgage consolidation loans. In today’s housing market, prices are rising quickly, and managing monthly debt payments is challenging. If homebuyers have sufficient credit history, stable income, and an established credit rating qualifying for a lower rate mortgage may provide a viable option for managing growing debt.
Lenders will consider a loan to value or LTV. This is the amount of the loan compared to the value of the home. Usually, lenders, including private lenders, will approve the consolidation of high-interest rate debt into a lower interest rate mortgage with a debt consolidation mortgage. However, the LTV is typically 80% or less with some lenders approving up to 90% of LTV.
How to calculate loan to value: mortgage loan amount ÷ home value * 100
With an existing mortgage, there are options to refinance the current mortgage into a debt consolidation mortgage. The benefit is to utilize the home as an asset and leverage the home equity built over time. Consolidation usually enables a more manageable monthly payment based on a lower interest rate.
There are costs to breaking an existing mortgage in order to move a debt consolidation mortgage. Costs could include mortgage penalties, CMHC premiums, legal fees, and property appraisal fees.
Given the potential complexity in these types of mortgage consolidation loans, the services of mortgage experts can assist to determine suitability and qualification, including bad credit situations.
Questions about Debt Consolidation Mortgages
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