What Is A Debt Consolidation Mortgage?
A mortgage (usually in the form of a second mortgage/HELOC/equity take out) is most commonly used for debt consolidation purposes. Though there usually isn’t a restriction on what the funds can be used towards, most people tend to pay down high interest credit card debt, high interest unsecured loans or high interest vehicle loans with the money they obtain through a debt consolidation mortgage. It is important to understand that a debt consolidation mortgage is a loan that is collateralized against equity that has been built in your home. If you do not have enough equity in your home and the risk of lending (risk is based on default) is very high, it is not likely that you can be approved for this type of mortgage.
Debt consolidation mortgages are meant to ease the financial burden placed upon you by high interest loans while increasing your monthly cash flow. Usually, high interest debt remains the same or grows larger as it becomes hard to pay down principal making only minimum down payments. To increase cash flow, a debt consolidation mortgage usually allows you to borrow enough money to consolidate all of your debt into one monthly payment at a lower rate. This results in a lower fixed monthly payment which has less of an impact on your wallet, and your credit score.
What most people tend to recognize is that a debt consolidation mortgage is still debt. What they fail to realize is that this short term solution allows you the breathing room settle your debt with the creditors, ease the number of financial responsibilities, save your credit score all while saving money. It’s as simple as that.
Here is a very realistic example of what a debt consolidation mortgage can do for you:
You currently have the following debts:
– Visa $6,000 (APR 19.99%)
– MasterCard $8,000 (APR 19.50%)
– Acura Loan $16,000
– Student Loan $5,000 (APR 10%)
You currently have the following total monthly expense (for the above debts): $1,200/Month
Perhaps you can consistently make the following payments (most of which are interest only), or perhaps you are falling behind with these payments
A debt consolidation mortgage can allow you to collateralize your equity and take out a mortgage of $40,000 (If you have the equity available). Your monthly payments for this $40,000 may only be $400-$450/month. From this $40,000 you pay off all of the above debts and not only make one payment of $400-$450/month. Now, you’ve freed up approximately $800/month while saving your credit from being tarnished by late/missed payments.
Speak to Canadian Mortgage Services to get a detailed analysis and breakdown of how a debt consolidation mortgage can help you. We’ll be more than happy to spend the time needed for you to better understand your options.