6 Things to Consider Before Applying for Debt Consolidation

For a great many people who happen to be in financial difficulty, debt consolidation might seem to make perfect sense.

If you happen to be one of these people, you will probably be familiar with the claims that debt consolidation is a fast and easy way to get out of debt.

However, it could be the case that you end up in deeper trouble than ever, possibly even losing your home in the process. It is not without good reason that debt consolidation has developed a pretty bad reputation in recent years.

Alleviating Your Financial Problems

In this article we will be exploring how debt consolidation could work for you. Naturally, we will also be exploring some of the pitfalls. Listed below are 8 points that, if carefully heeded, might just be of help in finding a good debt consolidation loan and thereby alleviating your financial problems:

1. Credit Report

If your credit rating has actually improved since taking out the loans, you might well be able to consolidate your loans at a much lower rate. It is for this very reason that you should start by getting your credit report. Study your credit report carefully and keep an eye out for any inaccuracies that might damage your score and prevent you from getting a decent rate.

2. Get Credit Counselling

A reputable credit counselling agency would be able to provide helpful advice, often free or at minimal cost. A good agency would assist you with preparing a budget as a means of getting your finances under control. However, it is extremely important that you exercise caution in this endeavour, as some less than scrupulous credit counselling agencies might attempt to take advantage of your situation.

3. Pay Off Your Debt Quickly

When consolidating your debts, try to pay off the loan as quickly as possible. Reduced monthly payments could merely be the result of your debt being spread over a lengthy period of time, meaning that it could end up costing you far more in the long run. If at all possible, try to get your monthly repayments as high as you are reasonably able to afford in order to clear the debt quickly.

4. Getting the Right Loan

When applying for a debt consolidation loan, be sure that it is the right one for you. You could opt for a home equity loan as a way of keeping the interest rate down, although you should seek advice from your mortgage broker before going down this particular path. Any default on repayment could potentially lead to the loss of your home. A less risky option would be to take out an unsecured loan, although you would be required to pay a significantly higher interest rate.

5. Get Quotes

Before committing yourself to a particular credit consolidation loan do a bit of shopping around first in order to compare interest rates. What you will probably discover is that your own bank or credit union would be prepared to offer the best deals.

6. Read the Loan Contract

This might sound obvious but it is vital that you fully understand every single line of your loan contract before signing on the dotted line. The slightest missed detail could possibly end up costing you a fortune or even your home.

Summary

If you happen to be in serious difficulty, consolidating your credit card debts and high interest loans might seem to make sense. Unfortunately, a great many people end up worse off. By exercising caution and taking stock of your situation, it might be possible to make debt consolidation work for you.

Author: Economic Voice Staff

Bidding war homebuyer beware: Appraisers not so eager Appraisals come in lower than buyers' offers

 Competitive homebuyers in hot housing markets are often facing a critical disagreement as they try to buy a house – the property appraiser doesn't share their opinion about how much the house is worth.

And that can leave homebuyers without the financing they need to close the deal.

The tension, between eager buyers and sellers and often conservative appraisers and bankers, is arising more in the hot housing market and the winners may be blinded by their victory.

There’s a good chance that buyers are so excited about getting the house they want that they’re willing to pay more than market value.

An appraisal is typically the value the mortgage lender will allow buyer to borrow against on the house. So when the appraisal comes in under what the buyers have agreed to pay, they may have to scrounge up the deference between their own funds and what the lender is willing to lend.

It's important buyers make sure they've completed their full application for a mortgage before making an offer, not just submit the initial pre-approval paperwork.
And something that the public should know about when they’re considering purchasing a home.

In competitive situations, many times buyers will increase their competitiveness by making their offer “firm.” But if they’ve gone into the offer without making it conditional on their loan coming through, they could be in trouble – facing a “lawsuit or loss of their deposit or both.

Steven Porter, CIBC Mortgage Advisor, steven@stevenporter.ca

2 Reasons to Switch Mortgage Providers at Renewal Time

 If you’ve ever renewed a mortgage before, chances are you’ve at least entertained the idea of switching mortgage providers. Switching providers is often the best choice, for two reasons: new lenders can usually offer you the best mortgage rates, as well as better prepayment options. The differences in these numbers from one lender to the next may seem insignificant, at first, but waiting until you find the best options can save you thousands of dollars in interest charges over the course of a mortgage term. Here’s why you should make the move:

1. Switch for a Better Mortgage Rate

Let’s say you purchased a home for $400,000, made an $80,000 down payment (20%) and took out a $320,000 mortgage amortized over 25 years. After 5 years, you need to renew, but your existing mortgage provider says the best they can offer you is another 5-year fixed rate of 3.89%. At that rate, your monthly mortgage payment would be $1,664 and you’d pay $48,975 in interest over 5 years.

If, instead, you had shopped around for a better rate/product for you, you could’ve found a 5-year fixed rate of 3.19% with a new mortgage provider. At that rate, your monthly mortgage payment would be just $1,343 and you’d pay $41,060 in interest over 5 years. By switching to a new provider, you could’ve saved $7,915 in interest during your 5-year mortgage term.

2. Switch for Better Prepayment Options

The second reason to consider switching mortgage providers at renewal time is if another lender can offer you better terms and conditions, with prepayment options being among the most important of them. Most lenders will let you increase your monthly mortgage payment amount once each year, but the amount you can increase it by often varies from lender-to-lender. The bigger the allowable increase, the more you can potentially save.

Example: 10% vs. 20% Prepayment Options

Let’s say you bought a $300,000 home, put $85,000 down and took out a $215,000 mortgage amortized over 25 years. If your current mortgage provider offered you a 5-year fixed rate of 3.79%, your monthly mortgage payment would be $1,107 and, over 5 years, you’d pay $37,880 in interest.

If, however, you decided to take advantage of your current provider’s prepayment options, you could increase your monthly payment amount by 10%:

$1,107.00 x 10% = $110.70

$1,107.00 + $110.70 = $1,217.70

If you did that just once* at the beginning of your new 5-year term, you’d pay just $37,229.22 in interest; that’s $650.78 less than if you had stuck with the original payment amount.

Now, if we assume you found a new mortgage provider who offered the same mortgage rate (3.79%) but a 20% prepayment option, your monthly mortgage payments could go up to:

$1,107.00 x 20% = $221.40 

$1,107.00 + $221.40 = $1,328.40 

If you increased it just once* at the beginning of your new 5-year term, you’d only pay $36,576.01 in interest; that’s $653.21 less than if you had stayed with your current provider and taken advantage of their 10% prepayment option, and $1,303.99 less than if you had done nothing.

*Remember that you could potentially increase your payment amount once each year and save even more, but we kept it simple for this example.

How to Make the Switch

If you find a new mortgage provider with an offer you’d like to accept and switch over to, you’ll need to submit a formal application, not unlike the one you originally submitted for your previous mortgage term. Keep in mind that the qualifying criteria may differ from lender-to-lender, so a new provider will likely require certain types of documentation with your application, such as proof of homeownership, employment and home insurance.

When your application is approved, the new provider will ask your existing provider for something called a Payout Statement. The statement outlines information regarding your current mortgage, including the outstanding balance as of the renewal date—this is the amount the new provider will use for your mortgage application.

Just before the switch is made, you’ll have to meet with the new provider again, to pay any outstanding fees for this new mortgage. These fees can include, but aren’t limited to, an appraisal fee, legal fees for signing the new agreement, a mortgage transfer fee and a discharge fee.

The entire process can seem a little daunting, but this is a great example of why it’s smart to work with mortgage brokers. Not only can a mortgage broker shop around for the best mortgage rate/product for you, they’re experienced in the process of switching providers and are happy to guide you through the process.

So, while the renewal slip your existing provider pops in the mail may seem tempting, it’s worth making an appointment with a broker and seeing what kind of offer they can find you. Just remember to give yourself lots of time: if you wait too long and your current mortgage term passes its maturity date, your existing provider will automatically renew you for another term.

Lenders forcing investors to move into commercial

 More landlords are selling up their single-family homes to get over the increasing obstacles imposed by lenders, according to investors.

Frustrated by the increasing demands for additional paperwork and lengthy waiting periods, more investors are selling their assets to make the move into commercial.

“Investors realised more the advantages of commercial investing over residential after the market tumbled and with more lending restrictions in place, we are seeing a lot more make that move,” says Chris Davies, a real estate investor and Realtor in Edmonton.
Requiring a larger down payment, Davies says more investors are willing to sell up their assets quickly and make the move, both into multi-family buildings as well as retail and office space.

Speaking to CREW for a special feature on commercial investing in the new September issue, Simmone Park, an Ottawa-based investor, says landlords can be more financially “creative” to make the move.

“You can get creative and use a small business loan in your corporation’s name rather than use a conventional mortgage,” she says.

The positive performance of commercial real estate across the country is also whetting investor appetite to make the move from residential. According to the latest REALpac/IPD Canada Quarterly Property Index, Calgary recorded the best return of 11.1 per cent for the year ending June 30 compared to the Canadian average of 9.5 per cent.

Edmonton enjoyed returns of 10.8 per cent during the same period, while Toronto hit the spot at 10.1 per cent.

Written by  Grainne Burns

Blogged by Steven Porter, Mortgage Advisor,