One of the most common uses of mortgages are for the purpose of loan consolidation. Often times, through a series of life circumstance, we tend to pile on a variety of debts at different interest rates. And example of some of debt types and interest rates are as follows:
- Credit cards – 19.99%-29.99%
- Personal loans – 10%+
- Lines of Credits (Unsecured) – 5%+
- Pay Day loans – 30%+
People are realizing more and more that it is no longer feasible to carry their unsecured debts because they are unable to successfully pay them down at their current interest rates. As such the option of loan consolidation through an equity take out or refinance is usually the best way to go. Since mortgage rates are currently hovering at historic lows, it makes sense to leverage the equity in your home to clear the debts.
In addition to this, there are other benefits to considering a loan consolidation. Usually when debts pile up to the maximum thresholds of clients financial capabilities, they tend to miss payments which leads to bad credit. Usually when clients start missing their payments, this can be contributed to the fact that they have exceeded their available cashflow to service their debts. By leveraging your mortgage for loan consolidation, you are protecting your credit history and also increasing your available cashflow to put towards other things such as savings and investments.
We always advise our clients to recognize their circumstances before they get out of hand. If you address your debts before you reach you financial limits and missed payments, then this is the most ideal time to proceed with loan consolidation. However, if you start missing payments then your benefits of the loan consolidation, although still helpful, will be less fruitful. In the case of mortgage rates, they will tend to be higher than the lowest available rates, but still worth the loan consolidation. Your cashflow will also not be as high since the higher interest rate on the mortgage will yield slightly higher payments. Please see below for an example how much cashflow can be increased by consolidating your debts into your mortgage:
Total Unsecured Debts: $50,000.00
Total monthly minimum payments: $1,200.00/m
Loan consolidation to payout unsecured Debts: $50,000.00
Increase in monthly mortgage payment based on 2.75% interest rate: $203.00
Net Cashflow = $1200/m – $203/m = $997.00
It is easy to see why a loan consolidation is the best way to protect and rebuild credit, payoff your debts and increase the available cashflow. As such, if you would like to learn more or discuss your options further, please feel free to contact us today – 905.455.5005