How can a mortgage broker help with debt consolidation?

Does your debt need a clean-up?

In the Shinto religion, followers believe in the power of cleaning and organizing objects properly. It is seen as a spiritual practice where followers feel energy or the divine spirit of things as they live the “right way.” When we consolidate and organize objects, we feel this sense of relief and this cleansing power. It can be a way to destress and take your mind off of other things. Maybe you reorganize your pen collection or throw away some unwanted clothes. In the end, you have a cleaner space and a clearer state of mind. The same goes for mortgages and debts. Debt consolidation is a useful tool for homeowners to reorganize their total debt. This can help reduce the amount of interest you are paying so the debt can be paid off faster.

Benefits of debt consolidation

Debt consolidation can benefit home owners and borrowers in a couple of different ways. Debt consolidation benefits borrowers by reorganizing their high-interest debts into one lower-interest loan. In theory, one payment is easier to manage and cheaper than many small loans with varying interest rates. This allows borrowers to reduce their total debt, which can allow them to qualify for a larger mortgage.

Different options

Debt consolidation can be classified in a few different ways. Borrowers have the option to consolidate their debt through a secured loan, a debt management plan, or a form of unsecured financing. A secured loan offers borrowers with many different options. Some of the more common options are to refinance their home, take out a second mortgage, or get a home equity loan. Secured loans usually offer lower interest rates and larger sums of money than unsecured loans. A debt management plan is a program provided by credit counseling agencies that give you a basic payment plan and some relief from interest costs.

For borrowers that can’t handle their debts on their own through creating a budget can work with a credit counselor to create a debt management plan. An unsecured loan is the last form of debt consolidation borrowers can choose. Unlike a secured loan, which is supported by a type of collateral, unsecured loans are supported solely by a borrower’s creditworthiness. Since unsecured loans are only supported by a borrower’s credit score, interest rates may be higher, and the borrowing limit may be lower.

How a mortgage broker can help

When looking at a secured loan to consolidate debt, mortgage brokers can help borrowers choose the one that best fits their needs. Between the three options- refinancing their property, taking out a second mortgage, and getting a home equity line of credit (HELOC)- it can seem confusing to some borrowers.  If a home owner can significantly improve the terms of their current mortgage, cash-out refinancing may be the most desirable option. It is the most expensive financing option, but it typically offers the lowest interest rates. You are able to finance up to 80 per cent of the current market value of the property, less any current mortgages.

One of the most popular choices is taking out a second mortgage since it offers low-interest rates and borrowers are only paying fees on the cash that they need. It doesn’t replace a borrower’s current mortgage and they can choose the terms on the loan. The last option for borrowers is a home equity loan. This option is when a borrower uses the equity from their property as collateral for the type of loan. It acts as a credit card for homeowners without the high-interest rates of a credit card.

Each of the secured loans offers different benefits for homeowners, which is where a mortgage broker can help out. A mortgage broker will assess the borrower’s finances and provide them with the best options to suit their lifestyle. When you’re considering consolidating your debt to live a less stressful life, talk to one of our mortgage brokers. You can get in touch with us here.