Debt consolidation

What is debt consolidation?

Debt consolidation consists of combining various credits into a single debt. The bank or financial institution carrying out the consolidation then becomes your sole creditor. Consolidating all your debts has several advantages including a single monthly payment to avoid any forgetting, savings on interest costs and a monthly payment lower than the accumulation of your previous payments.

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Why consolidate your debts with your mortgage?

Debt consolidation with a mortgage has several advantages in managing your monthly expenses.

1. Lower interest rates: By consolidating your debts, you reduce the cost of borrowing, saving money in the long run. Consolidating debt with a high interest rate into a mortgage with a lower rate results in lower monthly payments, allowing for faster repayment.
2. Improved credit score: Borrowers opt for debt consolidation to significantly improve their credit score. By grouping all your receivables together, this gives a more favorable debt signal to financial institutions.
3. Using Refinancing: The equity in your home, resulting from the difference between the property value and the mortgage balance, can be used to obtain credit or a line of credit. Refinancing allows you to consolidate your loans into a single payment.

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Disadvantages of using your mortgage to consolidate debt

The first hurdle is the affordability of using your mortgage to consolidate your debts. The financing process is now stricter, especially if your credit score has been affected. Additionally, lenders may be hesitant to grant this credit if your income is unstable or insufficient to guarantee adequate repayment.

The second disadvantage is the security of your property. If your property is sufficient to benefit from consolidation, its mortgage means that you could lose your property in the event of financial difficulties. Finally, it is possible that the bank will grant you a mortgage covering your credit balances, even if your file does not meet its acceptance criteria, possibly requiring an endorser in addition to the mortgage. In other words, you must be prepared for someone close to you to assume your debts in the event of default.

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To learn more, contact your mortgage broker

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