Let’s talk about a smart way to manage your debts in 2024: Debt Consolidation Mortgages. It’s like hitting two birds with one stone: managing your debts and owning a home.
Imagine this: you have a bunch of debts from different places—credit cards, loans, maybe even medical bills. It’s overwhelming to keep track of all the due dates and interest rates. Debt Consolidation Mortgages simplify things by combining all those debts into one monthly payment.
In this blog, we’ll delve into the top benefits of Debt Consolidation Mortgages in 2024, making your financial life a whole lot easier. Let’s dive in!
What Is Debt Consolidation?
The name says it all. Debt consolidation is when you consolidate all your various debts into one debt. You trade multiple creditors for one creditor so that instead of making several debt payments each month, you just make one larger payment.
Debt consolidation does not immediately lower the amount of debt that you have – it simply transfers it to another creditor. What it does do however, is it lowers the amount of interest that you are paying on debt maintenance so that more of your payments are going to pay off the principal – which helps you to get out of debt faster. There is also the advantage of convenience, since there is now only one payment to remember instead of multiple payments.
3 main ways that you can consolidate your debt using your home equity
If you are a homeowner in Mississauga, debt consolidation is easy when you use your home equity to do so. There are three main ways that you can consolidate your debt using your home equity. They are as follows:
- Mortgage refinancing – this is when you break your current mortgage and get a new one. Your existing debt payments are rolled into your mortgage at a much lower interest rate than you are paying now. This strategy usually works best when you are already close to your mortgage renewal date.
- Second mortgage – this strategy does not require you to break your first mortgage. Instead, you get a second loan against the equity in your home (most lenders will let you borrow up to 80% of your home equity). This strategy works best when your mortgage renewal date is still some time away.
- Home Equity Line of Credit – a home equity line of credit is a revolving loan against the equity in your home. If you have high interest debt, you can use it to consolidate the debt that you have. This debt consolidation strategy works best for those that will likely have to borrow more in the future but who have the self-discipline not to go into more debt unnecessarily.
Top Advantages of Debt Consolidation Mortgages
Here are a few of the advantages:
One easy payment:
If you have multiple debts, keeping track of them all and when you need to make payments can become a chore. With a debt consolidation loan, you only have one payment to remember. This reduces your changes of forgetting a payment, which can hurt your credit score.
Lower interest rate:
Another advantage is that debt consolidation loans generally have a much lower interest rate than other types of loans, so by consolidating your debt, you will be paying less money on interest and more money on the principal each time you make a payment. This means that you will be able to save money overall.
Get out of debt faster:
Along with saving you money, a lower interest rate also means that you will be able to get out of debt faster since you are paying more toward the principal.
Improve your credit score:
As you pay down your debt and ensure that you are not missing payments, another advantage you will see is that your credit score will begin to improve. Having a good credit score puts you in a more favourable position to get better rates on certain types of loans such as mortgages and car loans.
How Can An Akal Mortgages Broker Help Me With Debt Consolidation?
The primary way that one of our brokers can help you with debt consolidation is to help you get a debt consolidation loan by utilizing your home equity (the amount of money your home is worth minus what you still owe on it).
There are several ways that your broker can do this including:
- Second mortgage – this is a loan against the equity in your home. The interest rate will be a little higher than the interest rate on a first mortgage however the advantage of this approach is that it does not require you to break your first mortgage.
- Mortgage refinance – in this approach, you will have to break your first mortgage and get a new one that includes the amount that you are borrowing from your home equity to pay off debt. This option will have the lowest interest payments but there will be a financial penalty for breaking your mortgage. Your mortgage broker can run some calculations to see if paying the penalty will be worth the interest savings for you.
- Home equity line of credit – this is a revolving line of credit that uses your home equity. It works similarly to a credit card, but the interest rate is lower. This is a less common method for debt consolidation, but it may work for some homeowners who have recurring expenses that they need to put on credit.
- Unsecured loan – this option will have a higher interest rate than the others, but you won’t be borrowing against your home equity. This may be the best choice for you if you don’t have sufficient equity in your home to pay off your debts, or if you are simply uncomfortable borrowing from you home equity.
Contact Akal Mortgages Today
Would you like to learn more about your options for debt consolidation so that you can get out of debt faster? If so, contact a broker at Akal Mortgages today.
