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Why consolidating makes sense
Well over 15 per cent of our online applications are about consolidating debt, which means we get thousands of requests. That's because debt consolidation, a type of mortgage refinance, is quite common these days. It's not because people are in debt, it's because it makes sense.
Pulling equity out of your home at today's great interest rates can save you as much as 22% a month in interest charges!
The valuable equity that you have in your home can be used to consolidate high interest credit card debts, credit lines and even car loans.
In the past, for a client to consolidate credit card and loan debts, a second mortgage was your only choice. Did you know second mortgage rates can be as high as 24%?
Today, you can refinance your existing mortgage to incorporate those debts and remove the debt load without having to take out a second mortgage. Refinancing can start at today's 5-year rate of 3.24%*.Apply Now to Refinance or Consolidate Your Debt
Example of Debt Consolidation
If a person is in a situation where making monthly payments towards paying down credit debt is difficult, debt consolidation is an option.
The following table shows a common example of someone with debt. Notice the high interest rates and total monthly payments of $4,250 needed to pay off the line of credit, credit card and car loan in four years while still making the minimum mortgage payment for the next 25 years. Also, check out the interest paid.
|Before Debt Consolidation|
|Old Debt||Interest Rate||Monthly Payments||Interest in 4 Years|
|Line of Credit||$10,000||9.0%||$250||$1,950|
|All calculations in the above example are based on four years (4-year mortgage term, 4 year financing for car loan and a 4 year plan to payout of all credit debt). Credit debt payments are calculated at a fixed amount based the first payment using 3% of credit card balance and 2.5% of credit line balance. Monthly mortgage payment calculation is based on a standard 25-year amortization. For additional calculations, try our Mortgage Calculator and Credit Card Payment Calculator Tool.|
Consolidating debt reduces payments and interest charges
The advantage to debt consolidation is that it not only makes paying debt more manageable, it reduces the amount of interest you would have paid if you did not consolidate your debt. This is done by securing a better interest rate on your mortgage, an option that should always be considered if mortgage interest rates have dropped considerably since obtaining a previous mortgage.
There are fees associated with a debt consolidation mortgage, but they can be recovered very quickly from paying less in interest. In our example below, the interest paid in four years is substantially less. In doing the math, $96,550 minus $74,900 equals $21,650 in interest savings. Plus, your monthly payment is lower! In some cases lenders will cover appraisal fees and even legal fees, that would bring your total savings even higher as you are not paying those costs out of pocket.
|After Debt Consolidation|
|Debt / Expenses||Interest Rate||Monthly Payment||Interest Paid in 4 Years|
|New Mortgage Loan||$395,000||5.0%||$2,300||$74,900|
|* Penalties can be avoided by consolidating debt at the time of your mortgage renewal.|
Take the money you save and apply it to your mortgage
By converting all high interest debt into a low interest mortgage loan, you should have more money to contribute to paying off your mortgage faster while still having a lower monthly payment. In this example, the money that is saved on monthly payments can go towards reducing the amortization from a standard 25 years down to less than 15 years just by increasing your payment by an extra $950 a month.
|After Debt Consolidation|
|New Mortgage Loan||Interest Rate||Monthly Payment||Mortgage Paid In||Interest Savings|
|$395,000||5.0%||$3,250||14 years, 2 months||$167,450|
Applying for a refinance
The best way to determine whether debt consolidation is the right avenue for you is by calculating what your monthly debt payments total. Include all loans, lines of credit, credit cards and your mortgage. Take that amount and divide it by your gross total monthly income. If the number is higher than 0.50 then don't leave this site. If you are below 0.50 we can still help save you money.
In order to take advantage of this program, you must be a home owner and you must have at least 20% equity in your home.
Fill out our online refinance application and let us do the leg work for you. If you have any concerns or questions please include them in our application comments section. The secret is to determine at an early stage whether debt consolidation is the best route for you.Our Disclaimer: Although we make every attempt to ensure the accuracy of our website, we recommend you use the above mortgage information as a guideline only. Mortgage interest rates and product availability are subject to change without notice at any time. Certain rates or mortgage products require a minimum credit score, loan amount, or down payment amount and may only be available in specific lending areas. A quick closing loan condition may be required (does not apply to mortgage pre-approvals). For more information, contact Super Brokers by using our online mortgage application.