Many people struggle to get a control on debt, and it is a milestone for many to be debt-free eventually. With debt rising faster in many Canadian households, many of them struggle to make their monthly payments properly, it can at times be challenging to manage debt. The best way to make sure that most end up making their interest payments on time is to consolidate all their debt into one single loan with easy-to-make monthly payments. Debt consolidation allows one to save thousands of dollars in interest, additionally have lower monthly payments, and also allow one to pay off the principal faster. When considering consolidating debt, it pays off to look for the lowest rates that you can qualify for, including making manageable monthly payments. Do not let high-interest debt stand in the way of achieving your financial goals. Lots of Canadians have looked to take out a second mortgage to consolidate their debt and reduce some of the financial stress. From the below ways one can consolidate their debt through a second mortgage:
Consolidate debt using a second mortgage
Property owners in Canada can consolidate all their high-interest debts by using a second mortgage or their home equity (HELOC- Home Equity Line of Credit). However, one of the drawbacks of refinancing your mortgage to consolidate or taking out a second mortgage for debt consolidation is that the borrower must meet the lender’s debt-to-income service ratio criteria. Since the introduction of the stress test, it has become easier for borrowers to qualify for a mortgage. If you want to reduce your debt quickly, you will need to pay interest every month plus principal. If your income or credit score is low, that is not a problem; you may not qualify for refinancing, but you are likely to get qualified for a second mortgage. Interest rates for a second mortgage can be up to 10%, and you will also be required to pay a lender’s fee ranging between 1 – 2%. As the amortization periods are shorter, you will need to pay a higher monthly amount. When considering taking out a second mortgage to consolidate all your high-interest debt, you must way of the fact that failure to make the scheduled monthly payments on time or default in payments can lead to a risk of foreclosure.
Debt consolidation is one of the common strategies which involves combining multiple high-interest debts into one single low-interest loan payment. Individuals who have built-up more than enough equity in their property can take out a second mortgage to pay off said high-interest debt. The debt could be anywhere from paying your credit card bills to car loans and home loans, etc. Keep in mind, that paying off your high-interest debt does not pay off the first debt. A few people consolidate their debt only to sadly find themselves in a situation of being in debt within a short period.
When one takes out a second mortgage to pay off debts that are of high interest, they are putting their property at risk because they are moving unsecured debt to their house. The lender could eventually foreclose on the property if the borrower defaults or fails to make the monthly payments on time. Another major risk of taking out a second mortgage is that it could reduce the value of your property to the extent of it being worth less than the mortgage, resulting in the borrower likely to default. It’s better not to tie most of your high-interest debt to your house, and try to avoid it as much as possible. Speak to our experts at Matrix Mortgage to find out more information on how to resolve your debt with a second mortgage. We will also identify the root cause of how you got yourself riddled with debt in the first place.
When compared to other options to consolidate your debt, this option allows borrowers to access up to 80% of their property’s value. Applying for a second mortgage through a private lender is the best option available. A second mortgage is a type of home loan that is issued by a lending institution that can be offered by a traditional bank or a credit union, or even a private lender. If you are having a difficult time qualifying for a second mortgage with a traditional lender because of your poor credit score and history, this is the best option available to you. Despite the interest rate being high, you will still benefit from this option as the rate is far lower when compared to a personal line of credit or credit card. This ultimately helps you save more money in the long run, thus helping you pay off your debts sooner.
A second mortgage is a loan that one secures against your house on top of your first mortgage. They are normally used to consolidate debt and, as mentioned above, combine high-interest loans into a single monthly payment at a far lower interest rate. A second mortgage comes in different forms, such as a Home Equity Line of Credit (HELOC), which usually has a rate between 8 to 14%. A pro tip would be to shop around in search of the best rates, or get in touch with the team at Matrix Mortgage to help secure the best rate in the market that suits your current financial situation.