During the course of a typical month I will receive numerous requests for debt consolidation loans where the solution could be a first or second mortgage, either institutional, or most likely private mortgage.
This is a common type of mortgage financing request and is not at all unusual considering the high average level of consumer credit that is reported in the news on a regular basis.
The key to being able to provide a workable solution to the borrower is the presence of equity in their home or real estate property.
With sufficient equity, a potential solution can be arranged despite cash flow and/or credit problems.
Over the last couple of months, what has been most interesting with some of these cases is that the borrower inquiring about financing options is also considering not making their payments and negotiating a write down or write off of their current debts.
While negotiating a debt write down is certainly not a new practice, I have seen this being considered more and more in recent months by borrowers considering their debt management options.
And to be clear, I am not talking about individuals that do not have any refinancing or debt consolidation choices. I am referring here to individuals that have the means to consolidate their debt through incremental borrowings but choose not too, or seriously consider to choose not to in favor of trying to get their debts written off or written down.
Further, these are not consumer proposal scenarios either, but private debt negotiations.
There are definite pros and cons to a strategy of negotiating down your debt load.
The obvious pro here is that a write down or write off of debt reduces your overall amount of debt, your payments, and the interest you are going to have to pay on a go forward basis.
The potential here is to reduce your overall debt load by 30% or greater which can add up to very significant dollars for some individuals.
On the con side, there are a also a number of things to consider.
First of all, to go down this road, you are basically going to stop paying your creditors and get forced into a standard collection process over a number of months.
Collection agents are going to work hard to get this money repaid and it may take a considerable amount of time and distress until the process gets to a point of being negotiated out.
Second, there is no guarantee as to what the end result may be. In the mean time, your credit is slowly being destroyed and once everything gets resolved, it could take 5 to 10 years or longer to repair your credit.
So the question then becomes can you get a large enough short term benefit from a write down or write off to offset the future cost of bad credit over the next 5 to 10 years?
Many people also don’t realize that credit bureaus are now used for more than qualifying you for borrowing money.
Its not uncommon now for employers to complete both police and credit back ground checks during the hiring process. The reason for looking at your credit is to potentially get a glimpse of your character and how you handle your affairs away from work. Whether this is a fair practice or not, the point here is that bad credit can impact you in a number of different ways that can be hard to quantify.
Basically, its important to understand the true potential cost and benefit of trying to negotiate down debts you have incurred when you have other options available to you.
If you don’t have any other options, then that’s a different story altogether.
But for those that do, these are some of things they should be considering.
If we can find a way to consolidate existing debts through mortgage refinance or additional mortgage lending and get the cash flow in order in the process, then in the end there is a very good chance this is going to be a better approach for all the reasons mentioned and more than taking the highly uncertain path of trying to negotiate debt write off or write down.
Regardless of what strategy you choose, we are always available to go through the debt consolidation and mortgage refinancing process with you and discuss the available options…and the pros and cons.
If you’ve got a bunch of short term, high interest rate debt that you’re having trouble paying down and getting on top of, now is a great time to consider Toronto debt consolidation, utilizing your home equity to fuel the consolidation process.
There are lots of reasons why debt consolidation via mortgage financing or refinancing makes a lot of sense. But on top of all the very good reasons and strategies to get rid of higher interest costs, there is not likely to be any better time to actually get it done than right now for a number of very good reasons.
First and most obvious is the low interest rates we have been enjoying and continue to enjoy. That being said, there is no guarantee that the current rates will continue at these unprecedented levels. Any future increases, which are more likely than not, will be taking money out of your pocket of your future debt consolidation activities.
Second, the housing market, largely driven by the interest rates is over heated at the present time with properties being sold fast and furious at sometime inflated values depending on where you live. Because debt consolidation via mortgage refinancing is based on equity in the property, you’re likely going to see strong housing prices in most areas at the present time, providing the greater potential to have more available equity for a refinancing, debt consolidation action.
At the same time, news reports are now talking about the housing market cooling off in the coming months. And any cooling off may directly impact the available equity you have to work with. Remember that when housing prices fall, so does the amount of equity, so right now could be the best time in the foreseeable future to get the most additional money in your hands to pay down or pay out short term debt.
So for people living in the GTA, there is no better time than the present, for a whole bunch of reasons, to get busy with your Toronto debt consolidation process.
If you are considering debt consolidation and need some assistance, I suggest that you give me a call so I can quickly assess your situation and come up with a variety of relevant refinancing options we can go over together.