In Canada, debt consolidation loans are designed for homeowners. Whether you own a home fully or you’ve taken a mortgage and are still in the process of completing payments, you may qualify for a consolidation loan with the equity you have gathered. What the bank or credit union will consider is the loan to value ratio. In simple terms, this is the size of your mortgage divided by your home’s value. It helps the lender to understand what percentage of your home the bank still owns.
In order to qualify for a debt consolidation Toronto, your loan to value should be less than 80%. Let’s look at a simple example. If your home’s value is $500,000 and you take a mortgage of $250,000 then your loan to value ratio will be calculated as $250,000/$500,000 multiplied by 100 which gives 50% as the LTV. Your LTV will be much lower if you make a bigger down payment or you have more home equity. Lending institutions consider a lower LTV ratio when giving consolidation loans because it means you have acquired enough equity to be able to use the home as collateral.
Consolidated loans that have a lower LTV are considered safer than those with higher LTVs. Look at it this way, if you default the loan and the property is foreclosure, there is a high chance that the lender will recoup their remaining balance if the property is worth more than the loan balance. There are a few cases where lenders can allow you to borrow more than your home’s value. The amount that you borrow above your equity is considered an unsecured loan which simply means that the borrower is taking a huge risk when giving this out. This type of loan is usually offered when the real estate market is doing well.
Perhaps debt settlement Toronto is not for you and you’ve instead opted for a consolidation loan. The first step is to find out more information about this type of financing. It’s very important to arm yourself with all the details so that you clearly understand what you are getting yourself into. Remember the risk is high when it comes to consolidation loans because you may lose your home even after spending years making mortgage payments. Talk to an expert who will assess your financial situation and advice on whether a consolidation loan is right for you.
As you plan on taking a consolidation loan, remember that you need to make changes in your lifestyle that would help you in making sure you never miss any payments. Opt for the same monthly payment so that you do not have disposable cash to waste after consolidating multiple loans. Make sure you clearly understand what interest rates apply and whether you will be paying this for the entire term of the loan. Consolidating your debt can help you improve your credit score but you need to follow the guidelines given when taking up the loan.