Many Canadians see debt consolidation as a healthy path to achieving financial freedom. It is easy to see why.
First, debt consolidation can lower monthly payments. It also results to lower interest rates. Third, this move can positively affect one’s credit scores. Finally, for people looking to repair bad credit, debt consolidation can greatly help.
If looking for ways to consolidate or merge your debts, here are some approaches to it.
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Refinancing Your First Mortgage
One way is getting a debt consolidation mortgage. What it means is that a lending institution will give you the money needed to pay in full the loans you have other than your house mortgage.
That will increase the amount of your existing mortgage and also give you a chance to lower your interest rate. Another advantage is that you will have to pay only the mortgage rather than pay separate debts.
Note that when you choose this option, you will be closing your current mortgage contract. That can mean additional fees for terminating the contract earlier than the date of maturity.
If you qualify, you can get from a lender as much as 80% of the current value of your property. The lender will also allow you to choose the type of rate – variable or fixed rate.
Refinancing is a preferred approach if you already have determined the amount of money you need. To qualify for this type of loan, borrowers must have 20% or more equity in their homes and their credit score must not be lower than 650.
The mortgage market today is highly competitive, which means you have a chance to get the most favorable terms and conditions. Keep searching for the best deal and let your certified mortgage broker give you more options before deciding.
Another option is getting a second mortgage. A second mortgage is an option for those who have a low credit score and do not have at least 20% equity on their homes.
If you belong to this group and if your home is located in an urban center, you can get up to 85% of the value of your home. For homes in rural areas, only up to 80% can be given to them.
Second mortgages generally have higher rates. To qualify for this type of loan, you must have at least 10% equity and a credit score not lower than 550.
Or you may just settle with a blended mortgage deal. This will allow you to get funding without having to break your current mortgage. You will not have to pay penalties since you will not be breaking your current contract.
With this, you will have a new blended rate. Remember though that the new rate will be higher than the rate in your current contract.
Blended mortgages are recommended for people with properties that had increased in value over time, and have a significant home equity. If you are one of them, you stand to get up to 80% of the assessed value of your home.