First, you may be able to get a lower interest rate on your consolidation loan than you were paying on your various other debts.With interest rates on credit cards often ranging from 12-18 percent, that can produce a real savings.“Generally when you decide to finance something, it’s a good idea to structure the length of the loan to match the life cycle of the item.For example, if you purchase a car you might structure the financing over five years, because at the end of the five years you may consider selling the car.” If you were to structure the financing for your car over 30 years, it means that if you sell the car in five years time, you’ll actually end up holding onto the debt for an additional 25 years – which dramatically increases the overall interest you’re paying for the car.In order to determine if you can consolidate debt into your mortgage, you start by determining how much available equity you have.In Canada, this is determined by taking 80% of your home’s value and subtracting any existing mortgage balance.
“Initially, their friends had advised them to consolidate the debt directly into their home loan when refinancing, which would have meant they were financing this debt over 30 years.
Mortgage loans come with the lowest interest rates because they are securitized; or in other words, they are backed by an asset – your home.
If you were unable to make your mortgage loan payments, the bank has a claim on your house, and this makes your loan less risky.
This not only simplifies the payments, but can also provide real debt relief by reducing those payments as well.
A consolidation loan can reduce your monthly debt payments in two ways.