Debt Consolidation Mortgage

What Is a Debt Consolidation Mortgage?

A debt consolidation mortgage is a loan that lets you combine all your debts into one new mortgage. The goal of this type of mortgage is to carry your debts at the lowest possible interest rate so you can save money and pay off your debt faster.

One of the main benefits of consolidating your debts into a mortgage is that mortgage rates are significantly lower than the interest rates on many other types of debt, such as credit cards and personal loans. This means that by consolidating your debts into a mortgage, you could potentially save a significant amount of money on interest.

In addition to saving money on interest, consolidating your debts into a mortgage can also make it easier to manage your payments because you'll only have one payment to make each month instead of multiple debts with different due dates and interest rates.

How Does a Debt Consolidation Mortgage Work?

A debt consolidation mortgage works by getting a new mortgage for a higher amount and using that money to pay off your current mortgage and unsecured debt. The new mortgage amount can be as much as 80% of the value of your home. The process of getting a debt consolidation mortgage is also known as refinancing or remortgaging.

To get started with your debt consolidation mortgage, you'll need to fill out an application and provide some supporting documents. If the lender needs an appraisal, we will arrange for one to be done. The whole process can take 3-4 weeks, and on the closing day, the lender will send funds to your lawyer or closing company. They will take care of paying off your existing mortgage and debts and will deposit any remaining money into your bank account.

Debt Consolidation Mortgage Example

Let's say you have $20,000 in credit card debt, a $10,000 personal loan, a $5,000 car loan, and $300,000 remaining on your current mortgage. You are currently making separate payments for each of these debts every month. By consolidating these debts into a mortgage, you can combine them all into one single payment. This means you will only have to make one payment each month instead of four.

Here's how this would work with some real numbers:

• Credit card debt: $20,000 at 19% interest, minimum monthly payment of $400
• Personal loan: $10,000 at 10% interest, monthly payment of $200
• Car loan: $5,000 at 8% interest, monthly payment of $100
• Mortgage: $300,000 at 5% interest, monthly payment of $2300

Total monthly payments: $3000

Now let's say you apply for a debt consolidation mortgage and are approved for a loan of $335,000. The interest rate on your new mortgage is 3%, and your monthly payment is $1700.

After consolidating your debts into one new mortgage, your monthly payments will be reduced from $3600 to $1700, which is an improvement of $1,900 in your monthly cash flow. This means you will have more money available to cover your other expenses or put towards paying off your mortgage faster.

It's important to note that this is just a very basic example to explain the idea behind a debt consolidation mortgage and your actual numbers may be different. As your mortgage broker, we can help you compare the costs and terms of different loan options and give you a better idea of what will work best for your unique financial situation.

How You’ll Receive the Funds

On the scheduled closing date of your new mortgage, the lender will transfer the full amount to your lawyer or closing company handling the transaction. Your lawyer will make the necessary payouts to your existing mortgage lender and any debts required to be paid out. Additional money will be deposited into your bank account.

If no debts are required to be paid out you will receive all the money deposited into your bank account and you can make the debt payments on your own.

Why Consolidate Debt Into a Mortgage?

There are a few good reasons to consolidate your debt into a mortgage. One reason is that it can be easier to keep track of your payments. Instead of worrying about different debts with different due dates and interest rates, you'll only have one payment to make each month. This can help you stay on top of things and make sure you don't miss any payments.

Another reason to consolidate debt into a mortgage is to save money on interest. By combining your debts into a mortgage, you might be able to get a lower interest rate than what you were paying before. This can help you pay off your debt faster and save you money in the long run. Consolidating your debt can also improve your cash flow by reducing your monthly payments. This can give you more money to use for other things, like saving or investing.

The Pros and Cons of a Debt Consolidation Mortgage

There are both pros and cons to consolidating your debt into a mortgage.

Some of the pros include:

• Lower monthly payments: By consolidating your debts into a mortgage, you may be able to lower your monthly payments. This can make it easier to manage your finances and free up money for other expenses.
• Lower interest rate: As mentioned above, you may be able to get a lower interest rate on a debt consolidation mortgage than what you were paying on your individual debts. This can help you save money on interest and pay off your debt faster.
• Simplifies debt management: Instead of having to keep track of multiple debts with different due dates and interest rates, you will only have one payment to make each month. This can help you stay organized and avoid missing payments.
• Improves credit: Debt consolidation can improve credit by allowing you to pay off your debts faster, lower your credit utilization ratio, and avoid missed or late payments.

Some of the cons of a debt consolidation mortgage include:

• Longer repayment period: A debt consolidation mortgage will typically have a longer repayment period than individual debts, which means it will take longer to pay off the loan.
• Risk of losing your home: If you are unable to make your mortgage payments, you risk losing your home. This is a much bigger consequence than defaulting on other types of loans, such as credit cards or personal loans.
• Difficulty qualifying: If you have a low credit score or a high debt-to-income ratio, you may have difficulty qualifying for a debt consolidation mortgage. This can make it harder to consolidate your debts and may require you to explore other options.
• Closing Costs: There may be costs involved including an appraisal fee, legal fees, and a discharge fee.
• Penalty: If your current mortgage term is not up for renewal there may be a penalty to break your mortgage early.

How Much Money You Could Save by Consolidating Debt

How much money you could save by consolidating your debt into a mortgage depends on a variety of factors, including your current interest rates, how much debt you have to consolidate, and the penalty to break your current mortgage.

In general, consolidating your debts into a mortgage can help you save money on interest if you are able to get a lower interest rate than what you were paying on your individual debts. You may also be able to lower your monthly payments, which can make it easier to manage your finances.

To get a better idea of how much you could save by consolidating your debt into a mortgage, speak with us. We can help you compare the costs of different loan options and give you a more accurate estimate of how much you could save.

How to Apply for a Debt Consolidation Mortgage

You can apply for a debt consolidation mortgage using our online mortgage application or over the phone.

You will need to provide information about your income, debts, and credit history. We will let you know what documents will be needed based on your goals and situation.

Documents Required for Debt Consolidation Mortgage

The documents that will be required are:

• Proof of income
• Property Tax Statement
• Mortgage Statement(s)
• Debt payout statements (if applicable)
• Home Insurance Document
  

Closing Costs for Debt Consolidation Mortgage

As your mortgage broker, we don't charge for our services. We get paid by the lender after your mortgage closes. There are some other costs to consider when getting a mortgage.

Appraisal: Most of the time, you'll need to pay for an appraisal (between $350-$550).

Legal Fees: If we use First Canadian Title to close your mortgage, the legal fees will be around $900. If you want to use your own lawyer, they'll probably charge you $1500-$1800.

Discharge Fee: Your lender will charge a fee to end your mortgage (between $350-$500).

Penalty: If your current mortgage term isn't up for renewal, you might have to pay a penalty to break it. This could be as low as three months of interest.

Free Refinance Promotion

Lenders sometimes offer promotions that allow you to refinance your mortgage for free, using First Canadian Title for the closing process and covering the legal. appraisal, and discharge fees. However, these promotions do not cover the penalty cost if you have to break your current mortgage.

Is a Debt Consolidation Mortgage Right for You?

A debt consolidation mortgage is a way to pay off high-interest debts using the equity in your home. This can be a good option if you want to lower your interest rate and improve your monthly cash flow.

If your mortgage is up for renewal, consolidating your debt is usually a good idea. If your mortgage is not up for renewal, you may have to pay a penalty to break your current mortgage. However, it may still be worth it if the savings from the debt consolidation mortgage outweigh the penalty cost.

As your mortgage broker, we can help you determine if a debt consolidation mortgage is a good option for you and can also explore other options, such as adding a second mortgage or home equity line of credit, that do not involve breaking your current mortgage.