Mortgage Approaches To Debt Consolidation
Debt consolidation via mortgage financing has become a very common form of consumer debt management over the past few years.
With the presence of lower interest rates and the development of insured and uninsured mortgage programs that will allow funds to be used for debt consolidation purposes, consumers are now utilizing their home equity to get their debt under control.
There are a few different mortgage approaches that can be taken when considering debt consolidation. In order to determine which approach is the best for a given situation, the borrower must first determine the time line over which the consolidated debt will be repaid.
Debt for consolidation is typically for built up credit card, term loan, and line of credit balances for unsecured credit facilities. Debt consolidation is considered because the borrower has found that repayment is either not happening fast enough or not at all, and whatever money is put towards the debt is being eaten up by interest payments.
If the intention of the borrower is to repay the “to be consolidated” debt off in say five years or less, then there are a few different mortgage approaches to consider.
First, if it makes sense to refinance the existing mortgage without incurring significant repayment penalties, then this would be a solid option to get the lowest possible interest rate available to the applicant, provided that the related mortgage had fairly generous prepayment privileges written into it to allow for faster repayment of the consolidated debt. Its not uncommon to see mortgages today that allow you to pay down the principal by up to 25% of the outstanding balance each year.
Second, if refinancing does not make sense for whatever reason, then a second mortgage or line of credit could be taken out. For an amortized second mortgage, the amortization period could be set up according to the projected repayment period, which in the example being used was 5 years.
If a secured line of credit was taken out, the line of credit would effectively be open and would allow principal repayment at any time.
And if a borrower’s credit could not support either of the first two options discussed, then a private second mortgage could be considered. Keep in mind, however, that private mortgages are typically for no greater than one year and receive interest only payments during the term for the most part. That being said, there are private mortgage lenders that will allow you to make monthly principal payments and can provide interest terms of two to three years.
So if you’re considering a private mortgage for your debt consolidation strategy, make sure you’re working with a residential mortgage broker who has access to private lending sources that can provide you with the debt repayment flexibility you need.
For help with a debt consolidation scenario, I suggest you give me a call so that I can quickly assess your situation and go over the most relevant options with you.
Click Here To Speak With Mortgage Broker and Debt Consolidation Expert Joe Walsh.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel