Consolidating your debts into your mortgage is often a no-brainer because of the multiple benefits, some of which include the following:
- Lower interest rates: by consolidating your debts into your mortgage, you’ll most likely be lowering the interest paid on your overall debts. This is because most unsecured debts carry higher interest because of the inherent risks of those debts not being secure to some sort of collateral. For example, a creditor for your credit card can be out of luck if you are unable to repay your debts. A mortgage on the other hand has real estate as collateral, so when the bank gives you a mortgage, they can afford to offer you much lower rates because the loan is secure to a collateral that protects their principal.
- Lower monthly payments: this is tied to the fact that mortgages have lower interest but, in some cases, the amortization of a mortgage can be up to 35-40 years. This means that the time you need to pay off the loan is stretched over a significantly longer period, which ultimately lowers your mortgage payment.
- Reducing the number of distinct payments: by consolidating your debts into a mortgage, you can simplify your payments by making a single payment that attacks all your debts simultaneously. Sometimes this can bring a sense of peace and relief as it reduces the number of bills you must pay attention to, on different dates and amounts. In other words, it’s much easier to track which can help prevent missed payments or forgetfulness that can arise from a busy life.
- Preserve a healthy credit profile – it’s not uncommon for many people to take a significant hit to their credit, even though they do not miss payments. Sometimes it’s just a matter of debt loads, and the amount being borrowed, relative to the credit limit of any given debt. Since the credit scoring system considers other factors (not just repayment history), this can have an impact on an otherwise healthy credit score. By consolidating your debts, it gives you a clean slate which in turn can correct/preserve a healthy credit score. This in turn helps you with getting the best product and rate offerings for future borrowing needs.
These are just a few reasons why consolidating your debts is often a good idea but that’s not to say there aren’t other things to consider because like everything in life, there are always counter points to look at. For example, the benefit of a lower payment due to a longer amortization (as mentioned above) does achieve the desired goal of a lowered payment. However, stretching your loan over a greater period, even at a lower interest rate, could end up costing you more money in the end. For example, a typical 5-year car loan with a monthly payment of $800/m can be reduced to a $100.00 monthly payment over the life of the mortgage at a lower rate, but because there are so many more years being used to pay off the car loan (in the mortgage) the amount of money paid on interest, in terms of Dollars, could exceed the amount you would have paid under the 5-year car loan period.
This is why the best thing to do is to speak with a mortgage broker so that we can review your overall profile and establish the best plan to eliminate your debts the right way. The goal is to increase cash flow but decrease the amount of interest you must pay. We’ve been helping clients with this and more for many years and look forward to offering you the same support. Call us anytime – 905-455-5005