If you are struggling with high debt, you may be wondering whether it’s a good idea to consolidate that debt using the equity in your Brampton home. Maybe you even know someone who has done this, but you wonder if that’s the best decision for you.
Before making your decision, it is essential to consider what is involved and the pros and cons of consolidating your debt into your mortgage. Our team at Brampton Mortgage Broker has put this brief article for you to read so you can better understand if you should consolidate your debt with the equity from your home. If you have any questions after reading this article, get in touch with our team so we can help you. Now on to the article below.
What is a debt consolidation mortgage?
A debt consolidation mortgage can be utilized best to consolidate all your debts into one low affordable monthly payment. This is done by leveraging the equity you have in your home to bring all your debts into one mortgage payment. This will allow you to pay off all your debts in full and have the new loan in place at a much lower interest rate and with one lender at much more affordable monthly payments, which will allow you to save hundreds to thousands of dollars. This is because the interest rate you will receive for debt consolidation will be much cheaper than the interest rate on all your other debts, such as credit cards, personal lines of credit, car loans, personal loans, payday loans, etc.
This is where our Brampton Mortgage Broker team can help you get the best out of your debt consolidation mortgage in three easy-step processes. First, we will work with you to understand how much equity you have in your home. Secondly, we will work with you to review your finances to find out how much debt you have outstanding and what needs to be paid off. In the third and final step, we will work with you to secure a debt consolidation mortgage with low affordable monthly payments to pay off all your debts, resulting in huge monthly savings.
So how this works in real-time is as follows; you will need to have enough equity in your home to pay off your debts. Since most mortgage lenders will allow you to use up to 80% of your home equity, this is the maximum amount of equity you will need available.
Taking your home’s value multiplied by 80% minus any mortgage balance will equal the maximum amount of equity you can use to get a debt consolidation mortgage. So here is an example of a debt consolidation we did for a client to give you a real-life example.
Home Value $500,000 * 0.80% = $400,000 – Mortgage Balance remaining $200,000 = $200,000 Maximum amount of equity available for our client.
So, as you can see from the above numbers, our client had $200,000 in available equity for a debt consolidation mortgage, our client only needed to use $135,0000 to pay off all their debts, and that is what we arranged for our client. Just a word to the wise, just because you have access to all the equity in your home, like our client’s example above, doesn’t mean you should use all of it. It is important to remain responsible and only take the amount you need. After all, you will be the one to pay it back.
What are the pros and cons of a debt consolidation mortgage?
Using your home equity to consolidate your debt has pros and cons, and you need to be aware of both before you decide to get a debt consolidation mortgage. Here 3 points our team at Brampton Mortgage Broker came up with each pro and cons to consider when getting a debt consolidation mortgage.
- You have one monthly payment – instead of having multiple lenders that you’ll have to pay each month. You’ll only have one lender. This is more convenient and helps lessen the chance of missing a payment.
- Lower your interest rate – when you use your home equity to consolidate your debt, typically, you’ll be paying off accounts with higher interest rates, and the interest rate on your mortgage will be much lower. This could save you thousands of dollars.
- It can improve your credit score – As keeping up with your payments becomes more accessible and manageable, your credit score can improve as you pay down your debt consolidation mortgage.
- It may take you longer to pay off your debts – If your debts are rolled into a 30-year mortgage, they could take a long time to pay them off.
- Your home is collateral – Because your mortgage is a secured loan, you could risk your home if you cannot make the payments.
- Risk of getting into more debt – With your credit cards and other accounts now freed up, you risk racking up more debt. There may be a temptation to rack up more debt. But doing so could put you in a worse position than before. If you decide to get a debt consolidation mortgage, you need to be very disciplined with your spending and avoid going back into debt.
Contact Our Brampton Mortgage Broker Team Today
If you are considering using your home equity to consolidate your debt, you should get in touch with our team at Brampton Mortgage Broker. We can show you your options and help you determine if this is the best course of action for you to consolidate your debts and save money. Call us today to make an appointment.