Debt Consolidation

1. Review Your Current Debts

The first step is understanding what you currently owe.

This may include:

• Credit cards
• Personal lines of credit
• Personal loans
• Car loans
• Other eligible debts

We’ll look at the balances, interest rates and monthly payments to understand your current debt picture.

2. Determine How Much Home Equity You Have

Home equity is the difference between the value of your home and the amount you owe against it.

For example:

Estimated home value: $800,000
Mortgage balance: $450,000
Estimated home equity: $350,000

Having $350,000 in equity does not mean you can necessarily borrow the entire $350,000.

The amount you may be able to access depends on your home’s value, existing mortgage and other secured debts, lender requirements and your ability to qualify.

3. Compare Your Available Options

Depending on your situation, we may explore refinancing your mortgage, a HELOC, a second mortgage or another financing solution.

We’ll compare the available options and help you understand the interest rates, payments, costs and terms associated with each.

4. Pay Off the Debts Being Consolidated

If your application is approved and completed, funds from the new financing can be used to pay off the debts included in the consolidation.

The exact process depends on the lender and financing structure.

5. Follow Your New Repayment Strategy

Consolidating debt is most effective when it’s paired with a plan to avoid rebuilding the balances you’ve just paid off.

The goal isn’t simply to create a smaller monthly payment. It’s to put you in a better position to manage and repay your debt.

As a general rule, homeowners may be able to borrow against their home up to a combined maximum of approximately 80% of the home’s appraised value, subject to lender requirements and qualification.

For example:

Home value: $800,000

80% of $800,000 = $640,000

If your existing mortgage and other debt secured against the property totals $450,000:

$640,000 – $450,000 = up to $190,000 of potential additional borrowing room

This is only an illustration.

The amount you can actually borrow may be lower and will depend on factors such as your income, credit, existing debts, property value, lender guidelines and mortgage qualification.

An appraisal may also be required to determine the property’s current value.

Depending on the lender and financing structure, homeowners may consider consolidating debts such as:

Credit Card Debt

Credit cards can carry significantly different interest rates from mortgage-secured borrowing. Consolidating credit card balances may reduce the interest rate on that debt, but extending repayment over a much longer period can increase the total interest paid.

Lines of Credit

Multiple unsecured lines of credit may potentially be included in a debt consolidation strategy.

Personal Loans

Depending on your circumstances, an outstanding personal loan may be included when restructuring your debts.

Car Loans

In some situations, a vehicle loan may be considered as part of the overall consolidation strategy.

Other Eligible Debts

Other debts may also be considered depending on the lender, the type of debt and your financial situation.

We’ll review what you owe before determining which debts could potentially be included.

Potentially.

Debt consolidation may reduce your required monthly debt payments if higher-interest debts are moved into financing with a lower interest rate and/or repayment is spread over a longer period.

But a lower monthly payment does not automatically mean you’re saving money overall.

Consider a simple example:

You may currently have several debts with combined payments of thousands of dollars each month.

After consolidation, the required monthly payment could be significantly lower depending on the amount consolidated, mortgage rate and amortization.

That can improve monthly cash flow.

However, if debt that would otherwise have been repaid over a few years is added to a mortgage and repaid over a much longer period, you could pay more total interest even if the interest rate is lower.

That’s why Garland Mortgage Solutions looks at more than the monthly payment.

We’ll help you compare:

• Your current debt payments
• Current interest rates
• Potential consolidated payment
• Mortgage rate
• Amortization
• Mortgage penalties
• Fees and closing costs
• Estimated longer-term borrowing costs

The objective is to understand the full picture before making a decision.

Two common ways homeowners access equity are through a mortgage refinance or a home equity line of credit.

Mortgage Refinance

Refinancing involves replacing or changing your existing mortgage and potentially increasing the mortgage amount to access equity.

A refinance may provide a structured repayment schedule where both principal and interest are included in the regular mortgage payment.

This can be useful when consolidating a larger amount of debt and you want a defined repayment structure.

However, refinancing before the end of your current mortgage term may result in a prepayment penalty, along with appraisal, legal or other costs.

Home Equity Line of Credit (HELOC)

A HELOC provides revolving access to credit secured against your home.

Unlike a traditional mortgage, you can generally borrow, repay and borrow again up to your approved credit limit.

HELOC interest rates are typically variable, meaning the rate and borrowing costs can change.

Because a HELOC provides ongoing access to credit and may allow relatively low required payments, it requires discipline to ensure the balance is actually being reduced.

Which Is Better?

Neither option is automatically better.

The right choice depends on:

• How much debt you’re consolidating
• Your available home equity
• Your current mortgage
• Potential mortgage penalties
• Your income and qualification
• Your credit profile
• The rates available
• How quickly you want to repay the debt
• How much flexibility you need

Garland Mortgage Solutions can compare the options with you before you decide.

Yes.

A mortgage refinance is a new lending decision, so the lender will review your financial situation before approving the new mortgage.

This can include:

• Income and employment
• Credit history
• Existing debts
• Property value
• Mortgage balance
• Requested refinance amount
• Debt-service ratios
• Other lender-specific requirements

At federally regulated lenders, mortgage refinancing is generally subject to the mortgage stress test.

This means you may need to demonstrate that you can afford the mortgage using a qualifying interest rate that is higher than the actual mortgage rate you’re being offered.

Being a homeowner with equity does not automatically guarantee approval for a refinance.

Applying for new credit can affect your credit profile, and how consolidation affects your credit over time will depend on factors such as your payment history, credit utilization and whether you accumulate additional balances after consolidation.

Debt consolidation itself does not guarantee an improved credit score.

It can in some situations, particularly when higher-interest debt is moved to financing with a lower interest rate.

However, a lower interest rate doesn’t guarantee lower total borrowing costs. Extending debt over a much longer repayment period can result in paying more interest over time.

Not necessarily.

Depending on your existing mortgage, lender, available equity and financial situation, options could include refinancing, a HELOC, a second mortgage or waiting until your mortgage renewal.

If refinancing requires breaking your existing mortgage, a prepayment penalty may apply.

Depending on the lender and transaction, costs can include:

• Mortgage prepayment penalties
• Appraisal fees
• Legal fees
• Title-related costs
• Administrative or lender fees

The costs should be considered when determining whether refinancing makes financial sense.

Potentially. Depending on your circumstances, available equity and the lender’s requirements, mortgage financing may sometimes be used to pay outstanding tax debt.

Tax arrears and liens can make a mortgage application more complex, so the specific circumstances should be reviewed before determining what options may be available.

Yes. Garland Mortgage Solutions is based in Mississauga and helps homeowners across Ontario and other provinces in Canada explore mortgage refinancing and debt consolidation options.

You don’t need to know which mortgage product you need before contacting us.

Start by telling us what you owe, what your current mortgage looks like and what you’re hoping to accomplish.

Garland Mortgage Solutions can review your situation, explain the options that may be available and help you understand the potential costs before you decide whether debt consolidation makes sense for you.

Let’s see what your home equity could do for you.