Debt Consolidation Loans in Canada
Wish you could combine all your debt into one low rate loan? Now you can, using HELOCs. It does not matter what type of debt you have: auto loans, credit card debt, personal lines of credit – all of these can be combined into one low-rate mortgage loan. You can pay interest rates lower than even a personal line of credit would permit once you consolidate your debt into a secured loan, backed by the equity in your property.
Debt consolidation is useful to those people who find it difficult to make their full monthly payments on time.
Why consolidate debt?
Lower your monthly payments
When you consolidate debts into your mortgage you can lower your monthly obligation by spreading out your payback period.
Lower your interest rate
Since your financial institution uses your home to secure your mortgage, making it less of a risk, this type of loan carries the lowest interest rates.
Improve your credit score
You are more likely to make each installment on time and in full if you lower your monthly payment and consolidate multiple payments into one. You’ll also enjoy better offers from lenders in the future, as this will improve your credit score.
Debt consolidation options
Lending institutions give you different options to consolidate your debt into your mortgage.
When you refinance, you will need to break your mortgage contract early and consolidate your mortgage and other debts into one mortgage/loan of up to 80 percent of the value of your home (also known as the Loan-to-Value ratio, or LTV). You will incur a penalty since you’re breaking a contract. Fixed mortgages have more stringent interest rate differential penalties than variable rate mortgages, where the penalty is likely to be three months’ interest.
Home Equity Line of Credit (HELOC)
Financial institutions use the value of your house to secure home equity lines of credit. This option gives you access to a maximum of 80 percent of the value of your home, less the outstanding balance on your mortgage. All HELOCs have variable mortgage rates. The interest rate on a HELOC is slightly higher than that of a conventional 5-year variable mortgage.
When you apply for a HELOC, the bank will not advance you all the funds at once, since this is a line of credit. With a HELOC, you can use as little or as much of the available funds as you wish. The bank also will not require you to pay down part of the loan principal every month. Your minimum monthly installment is an interest-only payment depending on the amount you have used from the line of credit.