Debt Consolidation

 

 

Debt Consolidation is a type of mortgage refinance that unifies your multiple monthly debt payments into one. As many payments each month can sometimes by hard to manage, combining them into one can reduce the burden of borrower.
Canadian residents have the prospect to use their valuable equity in their homes to consolidate many smaller credits, including but not limited to credit card payments, lines of credit, auto loans and study loans.

 

Reduce your Interest Expense

Insecure credit instruments like credit cards usually have higher interest rates, as these are comparatively risky products. You can transform such liabilities to a mortgage loan and reduce the risk involved. As a result, the interest rate on such liabilities falls equal to your mortgage rate. Not just that, you can wait for the right time when the prime rate is at its lowest, to consolidate your debt by refinancing your mortgage. This would also bring down your overall mortgage rate.

 

Reduce your Monthly Payments

Refinancing mortgage for debt consolidation not only reduces the interest rate, but also shortens your monthly loan payments. This means, you can then save some amount each month and invest it somewhere else. You can also use this money to pay off your debt in a shorter time, reducing your amortization period.

 

Example:

Assume a situation, where you are paying against numerous short and long term loans you have acquired. Instead of making multiple payments, you can write a single check to settle them all. For further understanding, see the table below.

 

BEFORE DEBT CONSOLIDATION

PARTICULARS

DEBT

INTEREST RATE

MONTHLY PAYMENT

Credit Card

$30,000

19.00%

$900

Line of Credit

$10,000

9.00%

$250

Auto Loan

$45,000

7.50%

$1,100

Mortgage

$300,000

6.50%

$2,000

TOTAL

$385,000

 

$4,250

 

AFTER DEBT CONSOLIDATION

PARTICULARS

DEBT

INTEREST RATE

MONTHLY PAYMENT

New Mortgage

$395,000

5.00%

$2,300

 

In order to apply for debt consolidation, you must have equity of 20% or more in your home. Moreover, you must acknowledge the costs and fees involved in putting up the application.