How to consolidate your debts using your mortgage?

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Banks are competing to offer a variety of bank loan packages. From cash cards to various consumer loans, bank users are spoilt for choice when it comes to accessing credit. It is relatively easy to sign up for one or more offers. However, when a person juggles with the management of his budget to repay several debts with high interest rates, he is quickly exposed to overindebtedness. Mortgage debt consolidation or mortgage refinancing is a solution. It allows you to stabilize the management of your finances. Find out from your mortgage broker how to consolidate debt with a mortgage.

What is a debt consolidation?

A debt consolidation is a financial operation that allows you to combine two or more loans into a single loan. Consolidating your debts consists in asking for a financing from a lending institution. Its amount is greater than or equal to the sum of the debts you have to repay. One of the advantages of this approach is that it allows you to better manage your finances: after debt consolidation, you only pay back one loan according to a fixed schedule instead of several debts at the same time.

Mortgage refinancing or mortgage debt consolidation is a long-term loan that allows you to borrow funds to pay off several debts at once, often early. Mortgage debt consolidation requires the mortgaging of the applicant’s real estate.

A mortgage debt consolidation is a particularly attractive solution for paying off high-interest loans such as credit card debt. With mortgage refinancing, the lender generally assures payment of all outstanding debts as well as the repayment of all receivables.

Why use your mortgage to consolidate your debts?

Mortgage refinancing is one of the possible solutions when you find yourself in a difficult financial situation, because you are unable to pay your debts or because of a decrease in your income.

Consolidating your debts with a mortgage loan ensures you :

having a single payment for all your debts: after a mortgage refinancing, you pay only one installment on a regular basis instead of paying several times a month for your multiple debts;
Access funds of up to 80% of the appraised value of the mortgage;
benefit from a more competitive interest rate: if you have multiple high interest loans that are primarily interest based, debt consolidation is the best option. Consolidating your debts with a new loan also means that you will have a single interest rate for the new contract. This single borrowing rate is generally lower than the rates charged for each consolidated debt;
Enjoy a sound budget by planning payments in line with your financial situation: according to negotiated repayment terms, you can pay a debt consolidation mortgage in monthly or weekly payments for example.

How does mortgage refinancing work?

Also known as mortgage repurchase, mortgage refinancing allows you to consolidate real estate credit, consumer credit, loan card debt, etc. The financial institution or credit agency from which you take out your debt consolidation mortgage requires a mortgage on your house or apartment. This allows the lending institution to protect itself from the potential risk of default.

Mortgage refinancing is therefore an option mainly reserved for people who have a property. To guarantee the repayment of the financing, the borrower puts his house in mortgage. This does not mean that the owner is dispossessed of his real estate, but it is a solid guarantee that he will be able to obtain the loan. The amount of the loan depends on the value of the mortgaged house. Lending institutions generally provide funds of up to 80% of the appraised value of the mortgaged property.

Using a line of credit

A home equity line of credit is another option for accessing funds to pay off your debt. As the name suggests, a mortgage is put in place to take advantage of this loan. When the terms of a mortgage debt consolidation do not suit you, the line of credit is the recommended alternative.

With this option, you can access financing of up to 65% of the market value of the mortgaged property.

No justification is required for the use of the mortgage line of credit. Beyond the repayment of your debts, you have the possibility of using the mortgage line of credit as you wish, because the lending institution does not apply any restrictions on the use of the funds.

The home equity line of credit generally has a lower interest rate than other forms of financing. The banks also do not impose a deadline or an amortization table for the repayment. It is therefore possible to repay the mortgage line and the interest in one go. If a home equity line of credit is repaid in full, the bank does not apply any penalties.

Steps to Mortgage Debt Consolidation

There are several recommended steps to successfully consolidate your mortgage debt:

Use a mortgage broker

The intervention of a mortgage broker is recommended to underwrite a mortgage refinancing. Your professional acts as an intermediary, negotiator and advisor. His missions are to accompany you throughout the process by offering a dedicated and tailor-made service. He also negotiates the best interest rates for you. During a debt consolidation operation, the broker proceeds first of all to an analysis of the financial situation of the borrower. He then collects the necessary information about the borrower and his property.

Compare interest rates

Your mortgage broker also assumes the role of negotiator. Beyond this negotiation phase, he also compares several offers in order to find the one that best suits your profile and your situation. Their extensive network of partners and their solid experience in the field of mortgage refinancing are a major asset. They can indeed intervene with different financial organizations to allow you to consolidate your debts under the best conditions.

Choosing the best offer

In order for you to choose the offer that meets your expectations, the mortgage broker provides you with several mortgage products that can meet your needs. With the help of a broker, you have several options and the final say in selecting the one that offers the most advantages and meets your needs.

Consolidating your debts by using your mortgage consists of consolidating several loans into one by using your real estate property as collateral. Your mortgage broker can help you with all the steps involved in a debt consolidation project using a mortgage.