First of, a debt consolidation mortgage is one of the most common and popular methods for consolidating higher cost, high cash flow demand debt into a mortgage instrument that carries a lower interest rate and has lower monthly debt servicing requirements.
A debt consolidation loan effectively leverages the available equity in your home in order to generate incremental funds that can be used to retire or pay down other debts.
The two types of debt consolidation mortgages placed in the Greater Toronto Area are a refinanced first mortgage or an additional mortgage registered behind any pre-existing mortgages on the property.
Both types are new mortgages that will be used to pay out short term debts and potentially other mortgages if a mortgage refinancing is also being done.
With a mortgage refinance, a new mortgage is issued for an amount greater than the old mortgage. The old mortgage is then paid out and the balance is applied to other debts you want to pay off or pay down. There can be a number of reasons for taking this type of approach with the most common being the desire to maintain the lowest possible interest rate afforded by a first mortgage position. As long as the repayment penalties are low or not applicable and your credit and financial profile still allow you to qualify for a low cost mortgage, then this may be an approach you want to considre.
The second type of debt consolidation loan financing scenario is via a new second mortgage or a new mortgage placed behind the existing mortgages already in place. For people with poor credit, in many cases created by the very short term debt they are trying to consolidate, a new private mortgage registered in second position is a very common approach to debt consolidation.
On the other hand, if you can still qualify for “A” type credit, but the prepayment penalties are going to be significant to refinance your existing first mortgage, then a bank or institutional second mortgage would potentially be an options.
Depending on your specific situation and requirements, there can be several Toronto debt consolidation mortgage options to consider.
As Toronto mortgage brokers, we welcome the opportunity to discuss your situation with you either on the phone or in person and go over all the different options you have available to you.