Debt Consolidation Loans in Canada
As the cost of living in Canada continues to rise, more and more Canadians are finding themselves struggling to make ends meet. During these times it can be pretty hard to avoid taking on debt.
Throughout the COVID-19 pandemic, nearly half of all Canadians have added to their existing debt. If you have costly credit card debt or lingering student loans, car payments or any other debts that you want to get rid of, you have options, including working with a mortgage broker to get a debt consolidation loan in Ontario.
Debt consolidation loans can be a life-saver when it comes to helping you pay off debt and start regaining your financial freedom.
What You Will Hear About Debt Consolidation Loans
- What Is A Debt Consolidation Loan?
- How A Consolidation Loan Can Help You Get Out Of Debt
- Common Forms of Debt You Can Consolidate
- Benefits Of Debt Consolidation Loans
- Are There Any Drawbacks To Getting A Debt Consolidation Loan?
- Why Are Debt Consolidation Loans Becoming So Popular?
- How To Get A Debt Consolidation Loan
- Types Of Debt Consolidation Loans in Canada
- Different Ways to Consolidate Debt
- Which Debt Consolidation Loan Option Is Best For Me?
- Why Work With A Mortgage Broker To Get A Debt Consolidation Loan?
- How to Get Debt Consolidation Loans in Ontario
- Bad Credit Debt Consolidation Loans in Ontario
- Consolidate Your Debt With Second Mortgage Canada
- Debt Consolidation FAQs
What Is A Debt Consolidation Loan?
To consolidate something means to combine or group together. When you consolidate debt, you are combing multiple debts into one debt. A debt consolidation loan is a loan given to you for the purpose of paying off all your debts. Since this loan is for the exact amount you owe, you are effectively transferring your debts from several different lenders to one.
How A Consolidation Loan Can Help You Get Out Of Debt
If you can find a lender who offers debt consolidation loans, you can use their money to pay off your old debts. While now you have a new debt to pay off, it is much more manageable than before.
A debt consolidation loan is a great financial tool you can use to help you pay off your debt for good with one, easy-to-manage monthly payment. It’s far easier to make one payment versus several different credit cards and other payments individually.
If you put up collateral that is valuable enough to cover your debts, like a home, car or plot of land, you can get a secured loan that will come with interest rates comparable to that of mortgages, which are some of the lowest in the lending industry. That will enable you to pay back your debts easier and faster than you would otherwise.
Common Forms of Debt You Can Consolidate
- Credit card debt
- Auto loans
- Personal Loans
- Student Loans
- Medical Bills
- Sudden Expenses
Benefits Of Debt Consolidation Loans
Reduce Your Stress
Trying to manage and pay off multiple debts may become difficult to manage, stressful, and mentally draining. However, a debt consolidation loan enables you to combine multiple bills into a one loan, owed to only one lender. There is a much smaller less risk of forgetting a payment – something that can be damaging to your credit score.
At Second Mortgage Canada, we can even help you to set up an automatic payment, so there is literally no work on your part, other than ensuring you have sufficient funds in your account.
The minimum payments on your debt consolidation loan will typically be much lower than the combined payments that you would be making on other debts, especially high-interest credit card debt. If you use your home equity to secure the debt consolidation loan, you can get an interest rate similar to a mortgage, which will be some of the lowest in the industry.
If you get a debt consolidation loan from a private lender, you will only be required to make interest payments until the loan term ends. Not only is this a great way to save money while paying down your debts, but you can also choose not to make the principal payment when cash is tight.
Improve Your Credit Score
A debt consolidation loan will pay off all your old lenders at once. Even though they technically didn’t get paid with your money, your debt consolidation loan paid them on your behalf. This shows up on your credit history and will improve your credit score. As you repay your debt consolidation loan your credit score will further grow. This could be a big bonus in future years when you might be looking to get a mortgage, a car loan or a business loan.
Among the biggest benefits of a debt consolidation loan are a set payment amount, a fixed interest rate and a specific payoff date. The lender will work out your installment payments so that you know exactly how much your payment will be so you can plan ahead. This makes it much easier to keep track of your payments and ensure that you are saving enough each month to make your required payments
Unlike other types of debt, such as credit cards or department store cards, a debt consolidation loan will not have revolving features that enable you to continuously borrow more money. Once you and a lender come to an agreement, you will get all the money you need in one lump sum.
Pay Off Any Kind of Debt
You can use a debt consolidation loan to pay off any kind of debt including credit cards, student loans, medical bills and personal loans.
Are There Any Drawbacks To Getting A Debt Consolidation Loan?
If you are trying to get out of debt, then getting a debt consolidation loan is one of the best things that you can do for yourself. However, if the reason that you got into debt in the first place was due to out-of-control spending, then it is vitally important that you work on a budget so that you don’t get yourself into credit trouble again.
A big drawback to getting a debt consolidation loan would be the impact of failing to pay it off. This would put you back in the same situation as when you started, in financial trouble. Not only will your credit score take a big hit by failing to pay back your debt consolidation lender, but they might pursue legal action in the form of foreclosure or power of sale if you used your home as collateral.
Why Are Debt Consolidation Loans Becoming So Popular?
Many Canadians today are saddled with large amounts of consumer debt. They may have outstanding student loans, CRA tax arrears, or credit card debt. Often, people who are struggling with debt may be embarrassed about their situation. They might feel as if they should have been more responsible with their money.
But the fact is, that many Canadians find themselves in this situation because of circumstances that are beyond their control, such as a job loss or an illness. But, for whatever reason you are in debt, getting out can sometimes feel like an impossible task.
Large amounts of high-interest debt and multiple monthly payment obligations can be incredibly overwhelming, and it might seem like you have no way to get out of the situation.
Trying to manage multiple monthly payments and scheduling your income accordingly may be difficult and cause a lot of stress. We understand that you want to get out of debt – you don’t want to keep making these payments, so it’s important to find a way to make the debt go away for good. You can do this effectively with a debt consolidation loan.
How To Get A Debt Consolidation Loan
When looking into a consolidation loan, one of our agents will sit down with you and tally up all of your debts. This could include student loans, credit cards, unsecured lines of credit and other personal loans – including car loans.
From there, a consolidation will bring all of those debts together into one loan for the total amount you owe. Now, it is important to understand that a consolidation loan doesn’t erase all of your debt – it still needs to be paid.
The consolidation loan makes the existing debt you have easier to manage. Consolidation loans often offer much lower interest rates than you would have with credit cards or lines of credit.
These loans also offer an end date for when all of your debt will be paid off. Consolidation loans are often amortized over 3, 4 or 5 years. They can be paid off over a longer period of time if the amount of debt that you have is very large or if you are looking for smaller monthly payments that are more manageable.
Should I Consolidate ALL My Loans?
In many cases, the answer to this question is yes. Consolidating your debt makes paying off your loans easier, more convenient, and less expensive. The exception to this rule would be if you have a particular loan that has a very low interest rate – an interest rate that the consolidation loan cannot beat. In this situation, you are better off financially if you avoid consolidating that particular debt to keep taking advantage of the low interest rate.
Types Of Debt Consolidation Loans in Canada
When people are looking for a consolidation loan, there are two kinds of loans they can get: secured and unsecured. Similar to other kinds of lending, a secured loan can provide a much lower interest rate and other favourable lending terms. Typically, a secured loan will involve borrowing against your home equity by refinancing your mortgage or by obtaining a second mortgage.
An unsecured loan means you don’t have to put up any type of collateral against the loan, but that will often come with a slightly higher interest rate or a higher monthly payment.
Since unsecured loans are riskier for the lender, they will often add higher interest and/or fees to compensate for the additional risk. With secured loans a lender knows that they can easily recuperate their losses if the borrower defaults, they can initiate a power of sale or foreclosure to take control of the property and sell it. It can be quite hard to stop power of sale or foreclosure so make sure you can make the required payments before agreeing to a debt consolidation loan.
When deciding on the type of debt consolidation loan that is best for you, it is a good idea to sit down with a mortgage broker who can review your situation and determine which type of loan would be most beneficial.
Different Ways to Consolidate Debt
To get a better understanding of the main types of debt consolidation loans that are available, here is an overview:
- Mortgage Refinancing is the act of getting a new mortgage to replace your current one, you can choose to refinance what’s left of your mortgage or incorporate some of your home equity in the new mortgage.
- You can use mortgage refinancing to consolidate debt and reduce your monthly expenses.
- If you have enough equity in your home, you can use it to get extra cash when you refinance your mortgage, given the value of homes in Ontario, this extra cash could be enough to pay off all your debts.
- While now you will have a slightly larger mortgage to pay off, it will make it cheaper to pay off than most other loans.
- By incorporating credit cards and other high-interest debts within your new mortgage’s balance, you will have fewer bills to pay each month and you will be paying them off at a mortgage-level interest rate which is one of the lowest in the lending industry.
- When you refinance your mortgage, your new loan will have a new interest rate that will be set according to current lending rates in the financial market. When interest rates are low, refinancing your mortgage can save you hundreds.
- Most borrowers use mortgage refinancing to take advantage of lower interest rates and save money on their monthly payments, especially if they got locked into a fixed-interest rate that is a lot higher than the current rate available. With the Bank of Canada recently lowering interest rates for lenders across the country, now may be the best time to take advantage of low-interest rates to refinance your mortgage.
- A financial penalty may be incurred for breaking your existing mortgage. Although, the benefits of refinancing your mortgage could outweigh the cost of any penalties.
- Speaking with a loan officer or mortgage expert is a prudent way to gain more insight into this process.
- With a second mortgage, you will obtain an additional home loan while you still have your first mortgage.
- While your primary mortgage will remain untouched, a second mortgage may be used to obtain cash from the built-up equity within your home. You can use this equity to pay off credit cards and other debts, to make home repairs or to use for many other reasons.
- Second mortgages usually have a lower balance than a primary mortgage, but since they are riskier for lenders to service, they come with higher interest rates and fees.
- Obtaining a second mortgage will not require you to break the terms or to incur a fee with your primary mortgage holder, so you won’t be charged any penalties like you would with a mortgage refinancing.
- If you have enough equity for a second mortgage, and that equity is equal to, or greater than, the value of your outstanding debts, you can use it to consolidate debt.
- Since a second mortgage uses your home equity as collateral, you will likely get a low-interest rate compared to any credit card debts or student loans, so using a second mortgage to consolidate debt can save you a lot of money as well.
- You will be obligated to make timely payments toward both mortgage loans, so make sure you can handle this responsibility before agreeing to a second mortgage.
Unsecured Debt Consolidation Loan:
- Unlike the first two options, an unsecured debt consolidation loan is not tied to the equity in your home. You are simply getting a loan from a new creditor to pay off other debts.
- Unsecured loans are considered to be much riskier to the lender than secured loans. For this reason, this option will have a higher interest rate than the above options.
- An unsecured loan is a viable option for homeowners who do not have enough equity to pay off certain debts or for homeowners who might be uncomfortable with converting unsecured debt while using their home as collateral.
- Unsecured loans are also helpful for non-homeowners who want to compile certain debts into a single loan.
- The better your credit score the lower your interest rate will be, however, you can still get a fair interest rate even with bad credit if you use a reputable mortgage broker like Second Mortgage Canada to help you find the right lender to work with for your debt consolidation loan.
Which Debt Consolidation Loan Option Is Best For Me?
In most cases, if you are a homeowner, mortgage refinancing or a second mortgage will generally be recommended.
Mortgage refinancing is a good idea if you still have a lot of terms left on your current mortgage, and/or if current interest rates are much lower than when you first got the mortgage. In that case, mortgage refinancing will help you save money and pay off your debts in one shot.
A second mortgage is usually the better choice if you will have to pay a large penalty for refinancing your mortgage, or if your mortgage renewal date is fast approaching and you do not want to reextend it. If you are close to your mortgage renewal date
An unsecured loan is your only option for debt consolidation if you do not own your own home, or if you do not have enough home equity to cover your debts. You can contact a mortgage broker for greater clarity and for assistance. They can understand your situation and run the necessary calculations to help you select the best loan option for your needs.
Why Work With A Mortgage Broker To Get A Debt Consolidation Loan?
Many people think that mortgage brokers are lending professionals who can help them get a loan to purchase a house. But some mortgage brokers can actually provide assistance with other types of loans as well – including debt consolidation loans.
While financial institutions, such as banks and credit unions can also do this, they can only offer the products that are available within their organization. This limits your options and you may not get the best solution for your situation.
But mortgage brokers work with a wide network of lenders, so they have more freedom to customize a debt consolidation solution for you. They will canvas their network of lenders and negotiate on your behalf to help you get the best interest rate available. Remember, the lower the interest rate on your debt consolidation loan, the faster you might be able to pay it off.
Mortgage brokers also have a lot of experience in helping their clients decide between different financing options, such as mortgage refinancing and second mortgages. They have specialized software that they can use to determine which option is more affordable (because the answer is not the same for everyone!).
And finally, a mortgage broker can act as a liaison between you and the lender to ensure that all of the necessary forms are filled out correctly to avoid unnecessary funding delays.
A mortgage broker is available to answer all of your questions so that you can feel confident about making the right choice for a debt consolidation loan.
How to Get Debt Consolidation Loans in Ontario
You simply need to find a lender willing to provide you with a loan for consolidating debt. Second Mortgage Canada works with dozens of lenders across Ontario, some of whom specialize in offering our clients debt consolidation loans. Getting out of debt can be very difficult, for anyone, and we know it can be hard to ask for help to pay it back and to evaluate your options. The team of professionals at Second Mortgage Canada are here to work with you and to find you the loan that works best for your needs.
Bad Credit Debt Consolidation Loans in Ontario
You can still get a debt consolidation loan if you have bad or poor credit. If you can find the right lender, there is no barrier to getting a debt consolidation loan as long as you make enough money each month to make interest payments on your loan. You probably won’t qualify for a loan from a bank or credit union, but you can qualify for a debt consolidation loan with a private lender.
Private lenders don’t have nearly as many rules or regulations to adhere to compared to traditional financial institutions. As such, they can provide financing options to a wider range of clients and approve loans much faster. They can easily provide bad credit debt consolidation loans, even to those who don’t have home equity. They are great to work with if you can find them.
Consolidate Your Debt With Second Mortgage Canada
Second Mortgage Canada we are mortgage and loan experts who specialize in working with clients who have a poor credit history and who are looking to clear up debt so they can repair their credit score and regain financial stability. A debt consolidation loan is a great way that borrowers can use to get out of debt and regain financial stability. Let’s work together to get you out of debt with one, easy to manage monthly payment.
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Debt Consolidation FAQ's
Each consolidation loan, like everyone’s financial situation, is unique. There isn’t any upper limit on how much debt can be consolidated, but we do have to work together to make sure that the amount is affordable for you and the terms can be met. Book an appointment today to discuss your options!
On a mortgage refinance you can use up to 90 percent of your home’s value for a debt consolidation home. With a second mortgage you can use up to 80 percent of the appraised value of your home minus any existing debts attached to it.
Not all consolidation loans have to be secured against an asset. You have options to make sure that you are doing what is right for you and you’re comfortable with it. We do not want to give you a consolidation loan that you dislike. Give us a call today to speak with one of our agents about an unsecured debt consolidation loan.
A lender will give you a loan for the purpose of paying off your outstanding debts, this loan will be used to pay off your old lenders in full. Once you pay off your old debts, you will need to make monthly payments on your debt consolidation loan until you fully pay it off.
You will be paying your debt off in one loan instead of many at once and you will likely be paying it at a much lower interest, saving you money and reducing your stress at the same time. It will also be improving your credit score since you will have paid off your old lenders in the process.
Your proof of income, credit history, credit score, and (if you own a home) your available home equity will be considered when you apply for a debt consolidation loan. Even if you have poor credit and low income, you can still get a debt consolidation loan when you speak with the experts at Second Mortgage Canada at +1-647-927-7836 or by filling out our form here.