What is debt consolidation?
Debt consolidation is when you take all your debts, such as your mortgage, credit card balances, car loan, line of credit, etc, and combine them all into one mortgage loan leveraging the equity in your home. By consolidating all this debt into a single mortgage loan with a lower interest rate, you are able to save potentially hundreds of dollars per month.
You’ve worked hard for your money
Do you feel like you are struggling with debt? Would you like to slash your monthly payments freeing up hundreds of dollars of your hard earned money each month? Do you feel that your debt is causing a lot of worry and keeping you up at night? At CityCan Financial, we understand that you work hard for your money, and we can show you how you can take control of your finances allowing you to focus on the more pleasant things in life, as opposed to focusing on your debt.
What is debt consolidation?
Debt consolidation is when you take all your debts, such as your mortgage, credit card balances, car loan, line of credit, etc, and combine them all into one mortgage loan leveraging the equity in your home. By consolidating all this debt into a single mortgage loan with a lower interest rate, you are able to save potentially hundreds of dollars per month.
Is debt consolidation right for you?
The first step is to determine if your home has equity in it. The definition of equity is the difference between the market value of your home and the amount owed on it.
Calculating your home equity example…
Your home is worth $300,000 and you owe $200,000 on your mortgage.
Then your equity is $100,000 ($300,000 – $200,000 = $100,000).
Depending on your situation, you can refinance your home up to as much as 80% of its value (and sometimes as high as 85%). Often people throw away hundreds of dollars per month towards their debts while they have valuable equity in their home just sitting there when it could be saving you money every month. Let’s change that!
The next step will be to see if it will actually save you money. At CityCan Financial, our highly trained mortgage brokers will analyze your situation inform you of your options. We can then make suggestions as to which option will be best for you, leaving you to make the final decision. Our job is to make things easier for you, so sit back and let us to the work for you. You can get now and contact your CityCan Financial Toronto mortgage broker today, or Apply Online now.
How debt consolidation works
Debt consolidation allows you to take advantage of lower mortgage rates and say goodbye to high credit card interest. Some credit cards have interest rates as high as 30%! Why give all that money away to the banks when you could keep it in your own pocket?
Let’s take a look at a before and after example of how debt consolidation can be effective.
| DEBT | BEFORE | AFTER | ||
| AMOUNT | MONTHLY PAYMENT | AMOUNT | MONTHLY PAYMENT | |
| Credit Cards | $20,000 | $600 | 0.00 | 0.00 |
| Car Loan | 18,000 | 500 | 0.00 | 0.00 |
| Line of Credit | 14,000 | 420 | 0.00 | 0.00 |
| Mortgage | 200,000 | 1220 | $252,000 | $1,538.18 |
| TOTAL | $252,000 | $2,740 | $252,000 | $1538.18 |
A savings of $1,202 every month!
In the above example, monthly payments were calculated at 3% of the balance for the credit card debt and the line of credit, which is common for theses types of accounts. The mortgage was calculated at 5.5% with a 25 year amortization (Mortgage rates are of course MUCH lower in 2013 than in this example meaning your actual savings could be significantly more). By combining all the debt into the mortgage at the same rate of 5.5%, the clients monthly payment would drop from $2,740 per month to $1,538, saving them a very respectable $1,202 every month!
Amortization
The total duration in which the loan will be paid, assuming equal payments throughout. A mortgage with a 25 year amortization would take 15 years to pay down to $0 assuming no extra money was applied to the loan in addition to the regular monthly payments.
If you were to break down the above example and look at how each debt is affected individually, it would look something like this:
| DEBT | BEFORE | AFTER | ||
| AMOUNT | MONTHLY PAYMENT | AMOUNT | MONTHLY PAYMENT | |
| Credit Cards | $20,000 | $600 | $122.07 | $477.93 |
| Car Loan | 18,000 | 500 | 109.87 | 390.13 |
| Line of Credit | 14,000 | 420 | 85.45 | 334.55 |
| Mortgage | 200,000 | 1220.78 | $1,220.78 | 0.00 |
| TOTAL | $252,000 | $2,740.78 | $1,538.18 | $1,202.61 |
Stop paying your hard earned money to the bank and talk to your CityCan Financial mortgage broker today! It is also possible that we could end up saving you some money on your current interest rate as well! You can reach us at 416-484-1000 or you can Apply Online now.
Debt consolidation pitfalls
There are a few things that you should be aware of before you begin the debt consolidation process. Most mortgages in Canada carry a mortgage prepayment penalty for paying it off, or refinancing the mortgage before the end of its term. The mortgage prepayment penalty, is most commonly equivalent to the greater of either three months of interest, or what is called the interest rate differential, or IRD. The interest rate differential is the difference between your current rate and the rate the bank can lend money out for today if they were to lend the funds out for the remaining term of the mortgage. It is best to contact your lender to find out exactly how much you will have to pay to get out of your existing mortgage. The penalty amount can end up being much less than you would end up saving through the debt consolidation…. So where is the real penalty?
You also want to make sure that you don’t fall into the trap of running up all your credit cards again right after the consolidation. It is a good idea to cut up all the cards that you don’t really need. Don’t cut them all up as you need to have a couple of credit lines (ie – credit card, car payment etc) to maintain your credit score. No credit is the same as bad credit in the world of money lending.
For the most part, debt consolidation just makes sense. Another great benefit is there are no additional fees for qualified buyers! Be sure to contact your highly trained CityCan Financial Toronto mortgage broker today to find out how debt consolidation can work for you, or apply for debt consolidation online. Even if you have bad credit, we may have a bad credit mortgage solution for you.
