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Canadians get into debt for any number of reasons: a lost job, unexpected expenses, a divorce, overspending, even saving too little. One of the best ways to get a handle on out-of-control expenses is through debt consolidation .

Canadians Going Deeper in Debt

If you’re in over your head with unmanageable debt, you’re not alone; nearly half of all Canadian credit card holders carry credit card debt. On top of that, one in three people do not pay off their credit card bill every month.1

According to the most recent data, the average debt balance for a Canadian consumer (excluding mortgages) is $21,028. In 2014, the average debt balance in Canada was $20,880.2

Part of the reason Canadians are getting further into debt is the ultra-low interest rate environment. For example, low rates on a line of credit, which typically has floating interest rates, make it cheaper to borrow.

Things can go from bad to worse when you just pay the minimum due on a credit card or line of credit. This can lead to a worrying cycle of unmanageable debt.

Hike in Interest Rates Could Hurt Canadians Even More

Canadian interest rates have been at historic lows for years, leading many Canadians to get complacent about the eventual hike in interest rates. Even those with manageable debt levels could feel stretched when interest rates start climbing higher.

In addition to personal debt, many Canadians will struggle to make mortgage payments when rate hikes kick in. One third of homeowners will have trouble making mortgage payments if their monthly payments increase by just 10%. A further 15% could not handle any increase in payment.3 This is an indication that home buyers weren’t given the best mortgage advice when they purchased their home.

Average Canadian Won’t Be Debt-Free Until Age 56

On average, Canadians don’t expect to be debt-free until they are 56 years old, while 21% will carry debt until they are over 65. Over half of Canadians aged 65 and older say they carry some form of debt, with credit card debt and lines of credit being the most common types. In addition, 13% of Canadians say they will never be debt-free.4

But how do you pay off your debt? And where do you start if you have multiple sources of debt?

Manage Your Debt Through Debt Consolidation

If you are overwhelmed with unmanageable debts, it might make sense to merge them all into one loan. This is what debt consolidation is.

You can consolidate your debt by taking out an equity home mortgage or you can refinance your mortgage . Debt consolidation helps simplify finances so you only have one monthly payment. On top of that, the interest rate on debt consolidation is usually much lower than other loan interest charges.

Canadalend.com: The Nation’s Leader in Debt Consolidation

If you’re feeling overwhelmed by monthly bills and mounting interest charges, you might want to consider consolidating your debts. If you’re looking for debt consolidation services in Ottawa, there’s no better place to turn than Canadalend.com.

The licensed, independent agents at Canadalend.com are dedicated to helping you secure the debt consolidation plan best designed to fit your financial and lifestyle needs. Whereas large banks and other lending institutions will only try and sell you their financial products, Canadalend.com works for you.

If you find yourself in debt and are wondering if a debt consolidation loan is right for you, contact Canadalend.com or apply online and a mortgage specialist will help set up an appointment for a personal consultation to review your options at your earliest convenience.

As the leading debt consolidation service provider in Toronto, Canadalend.com will, in most cases, get your debt consolidation or refinancing approved in just 24 hours.

Sources:

Loney, H., “Nearly half of Canadians have credit card debt, report shows — Here’s how to get rid of it,” Global News web site, February 10, 2015; http://globalnews.ca/news/1822207/nearly-half-of-canadians-have-credit-card-debt-report-shows-heres-how-to-get-rid-of-it/.

“Consumer debt rising, but Canadians have a better handle on it,” CBC web site, August 26, 2015; http://www.cbc.ca/news/business/consumer-debt-rising-but-canadians-have-a-better-handle-on-it-1.3204568.

“Four in ten homeowners made an extra payment on their mortgage in the past year, Manulife Bank of Canada Debt Survey Shows,” Manulife Bank web site, June 16, 2015; https://www.manulifebank.ca/wps/wcm/connect/d96abe3b-e6d3-4d03-892d-931ce22e61ed/Spring+2015+Debt+Survey+News+Release+-+FINAL.pdf?MOD=AJPERES&CACHEID=d96abe3b-e6d3-4d03-892d-931ce22e61ed.

“Debt Freedom? Canadians expect to be debt free by age 56: CIBC Poll,” Yahoo! Finance, July 27, 2015; https://ca.finance.yahoo.com/news/debt-freedom-canadians-expect-debt-080000526.html.

If you’re a homeowner in North America today, you might be over budget on current home renovations, behind on your mortgage payments, drowning in student debt, or struggling to consolidate debts in other areas of your life. These situations can make life a stressful journey to bear on your own, but you no longer have to suffer with debt weighing you down.

If you relate to the feeling of stress or the financial burden and worry, then you might be the perfect candidate for a second mortgage.

What Is a Second Mortgage?

A second mortgage is a second loan that is secured against the equity in your home. With a traditional second mortgage, you can borrow up to 85% of the appraised value of your home, minus the amount left to pay on your first mortgage.

A second mortgage, as the name implies, is a mortgage loan taken out after the first mortgage is already in place. It does not replace the first mortgage. With a second mortgage, a homeowner will take out a separate mortgage with a different lender. This means that while you make payments on your second mortgage, you will also continue to make payments on the original, first mortgage.

The term second mortgage is used in part because it is second in priority if you happen to default. If you do, the first mortgage gets paid off before the second one does. A second mortgage is thus considered riskier for mortgage lenders. To compensate for this additional risk, interest rates on second mortgages are higher than on the first, or principal mortgages.

Second mortgages are one way to wisely consolidate multiple debts, which is why many homeowners take out a second mortgage on their property. They can then use that money for anything from home renovations, to their children’s education, investing, or even to pay off debt.

Top Ways to Refinance

To qualify for a second mortgage, lenders will look at how much equity you have in the home. The more you have available, the better your chances for qualifying for a second mortgage. They also want to ensure you have a dependable source of income, so you can make these additional payments. Lenders will also look at your credit score. The higher your score, the lower your interest rates.

For homeowners with more than 20% equity in their homes and good credit, a popular, affordable second mortgage will be a home equity line of credit (HELOC). A HELOC is a revolving line of credit that accesses up to 65% of the value of your home. You receive a commitment for an agreed upon amount and use only what you need. You also only pay interest on the amount you use.

If, however, a homeowner has bad credit and/or little equity built up in their property, they may want to consider getting a second mortgage through a trust company, smaller bank, or private lender. A more traditional second mortgage is for a specific amount and repaid with monthly payments. Here you can borrow up to 85% of the appraised value of your home, minus the amount left to pay on your first mortgage.

Sample Case Study

Samantha and her husband, Jeremy, have been struggling financially for years, and they can’t seem to get themselves back on their feet and out of debt. They have a mortgage on their current house but are behind on their payments. They’ve been racking up credit card debt over the years and don’t know what they’re going to do next. Lucky for Samantha and Jeremy, there is a financial solution.

Step 1: Samantha and Jeremy call Canadalend.com for financial advice.

Step 2: Canadalend.com introduces Samantha and Jeremy to the option of taking out a second mortgage, which is a loan at a lower rate of interest than conventional credit card loans.

Step 3: Samantha and Jeremy have plenty of equity in their current home and are able to take out a second mortgage.

Step 4: With the immediate cash, Samantha and Jeremy are able to pay off the urgent debts that were completely ruining their lives.

Step 5: With monthly payments they can meet, at a fixed interest rate, Samantha and Jeremy are on track to financial freedom!

If you are out of options and struggling with debt, we’ll take a look at the equity in your home and determine if a second mortgage is the right option for you.

FAQs about Second Mortgages

Are second mortgages a good idea?

The idea of taking out a second mortgage sounds daunting. After all, you’re taking on an extra monthly payment. But, under the right circumstances, a second mortgage can actually save you money.

The interest rate on a second mortgage will be higher than the interest on a primary mortgage. That’s because a second mortgage is second in line to be paid off should you default on the loan. As a result, the risk is higher for the lender of the second mortgage. While the interest is higher on a second mortgage, it is still significantly lower than the interest charged on short term debt like credit cards.

Why would you take out a second mortgage?

Many Canadians take out a second mortgage to help them consolidate debt. If you’re overwhelmed by credit card debt, car loans, or other high interest debt, a second mortgage can help you consolidate your debt.

Instead of having numerous high interest debt payments, you have one, lower monthly payment at a lower interest rate. That translates into a whole lot of savings.

More and more Canadians take out a second mortgage to pay for things like home renovations or to help pay for their children’s tuition. Second mortgages are also a good idea if you want to tap the equity you’ve built up in your home but you’re in the middle of your mortgage term and you don’t want to deal with the fees associated with refinancing your current mortgage.

Is it easy to qualify for a second mortgage?

Even though you already have a mortgage, and have maybe never missed a mortgage payment, there is no guarantee you’ll be able to secure a second mortgage with Canada’s big banks. In order to qualify for a second mortgage, traditional lenders will look at equity, income, credit score, and property.

• Equity: The more equity you’ve built up in the property the better chances you are of qualifying for a second mortgage.
• Income: Banks and trust companies want to make sure you make enough money to make payments on your second mortgage. If you’re an entrepreneur or self-employed and have unreliable income, traditional lenders may not be able to verify you earn enough.
• Credit Score: The higher your credit score, the lower your interest payments.
• Property: Even if you do well on the other three factors, the big banks may not want to give you a second loan because they do not like the property they are lending on. If for some unfortunate reason, the bank forecloses, it needs to secure their investment. If it doesn’t think it can turn it over quickly, it may turn you down for a second mortgage.

Can you sell your house if you have a second mortgage?

You can absolutely sell your home if you have a second mortgage. The money from the sale of the property goes to pay off the primary mortgage first and then the second mortgage. You get anything that is left over.

The only time a homeowner with a second mortgage could run into trouble when selling their property is if home values have fallen. It is possible that the sale of the property does not generate enough cash to pay off the first and second mortgage.

Canadalend.com: Helping You Find the Best Low-Rate Second Mortgages

If you’re looking for a second mortgage and want to know what you can afford, it’s important that you work with a mortgage broker that has a proven track record of helping clients find the best financial products at the best rates. A second mortgage that not only meets your financial needs but also your long-term lifestyle needs.

Canada’s big banks and traditional lenders need to follow strict lending guidelines set out by the Federal Government. Private lenders, because they are private, are not subject to the same rules; they are much more flexible, which means they can be a much better option for homeowners.

The licensed, independent agents at Canadalend.com will help you make the most informed decision possible when it comes to getting a second mortgage. To see what kind of second mortgage is right for you, contact Canadalend.com today. Or apply online and a Canadalend.com and one of our lending specialists will help you set up an appointment for a free, personal consultation.

Are you thinking of stepping onto the property ladder but afraid that bad credit or a bankruptcy will prevent you from moving into your dream home? While Canada’s big banks might consider those with bad credit to be high-risk, there are many lenders out there willing to work with those who have bad credit—regardless of your payment history.

Can I Get a Mortgage with Bad Credit?

A lot of Canadians have bad credit. That shouldn’t mean you can’t get a mortgage to buy a home. But that’s not how it is with the traditional brick-and-mortar banks in Canada. They see those with poor credit as being a high risk to default on that mortgage—at least until your credit score improves.

Fortunately, the lending environment has changed in Canada. There are lots of options for those with bad credit looking to get a mortgage. To determine what kind of mortgage those with bad credit qualify for, private lenders still consider income, type of employment, down payment, credit profile, if you’re a first time buyer, and other factors.

How Do I Qualify for a Mortgage with Bad Credit?

One of the most important factors lenders look at when considering those with bad credit is your employment and income. Private lenders want to make sure you make enough money to pay for your mortgage.

On top of that, many lenders might require a higher down payment. While someone with excellent credit may only need to come up with a down payment of 5%–10%, those with bad credit may have to put down more.

Keep in mind, the higher the down payment, the better your chances of getting approved for a mortgage . That’s because a higher down payment shows the lender you are able to save and budget.

Keep a Budget in Mind

Your down payment represents a percentage of the value of the home you’re looking at, so it’s important to go into the mortgage and house-hunting process with a price range based on your maximum down payment.

One way to figure this out is to determine your debt-to-income ratio . The higher the ratio, the less likely it is you will be able to meet your monthly obligations. Be sure to factor in all your monthly costs, including condominium fees, property taxes, home insurance, interest charges, and the principal amount of the mortgage.

Potential lenders also look at your total debt-to-income ratio, but they also consider additional monthly payments, such as student loan debt, car payments, and credit cards.

Canadalend.com: Helping Those with Bad Credit Find Their Dream Home

If you have bad credit or have filed for bankruptcy and want to buy your first home, our mortgage brokers can help you both find a mortgage and tell you how you can improve your credit score.

The licensed, independent agents at Canadalend.com have access to hundreds of different lenders, many of whom provide mortgages to those with bruised credit or have filed for bankruptcy. To find out how you can get approved for a mortgage and rebuild your credit score, contact Canadalend.com today. You can also apply o nline and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.

First-time Canadian home buyers generally hold fast to the 20% down-payment rule in an effort to avoid paying default insurance. But with the red-hot Canadian housing market showing no signs of slowing down, it might make more sense to jump on the property ladder with or without that 20% down payment.

Canadian Real Estate Market Remains Strong

The Canadian housing market remains strong. In August, the average price of a home sold in Canada was $433,367, an 8.7% increase over the last year. On top of that, sales were up four percent over the same period.1

The hottest areas in the country for real estate continue to be the Greater Toronto Area , including Hamilton, and Vancouver and the Lower Mainland. If you take these cities out of the equation, the average Canadian home in August was worth $338,755; a more reasonable 4.2% increase year-over-year.

The strong price and sales growth is testament to the long-term value Canadian home buyers put on the value of home ownership in this country. Unfortunately, steadily rising housing prices have many Canadians thinking they are being priced out of the housing market.

And you may be if you’re trying to save a 20% down payment.

Why It Makes Sense to Buy a Home with Less Than a 20% Down Payment

Conventional wisdom holds that you should wait to buy a home until you have a down payment of at least 20%. With a 20% down payment you avoid having topay mortgage default insurance . But with housing prices rising so fast, waiting an extra year or two to save for a 20% down payment could more than offset the savings on mortgage insurance.

If you have a down payment of less than 20%, you have to pay a premium to insure your lender should you default on your mortgage payments. The default insurance is typically added to your mortgage principle.

If you have a down payment of less than 10% (five percent is the minimum in Canada), mortgage insurance will cost you 3.6% of the purchase price. If you have a down payment of less than 20% but more than 10%, the insurance premium ranges from 1.8% to 2.4% of the purchase price.

If you live in Manitoba, Ontario, or Quebec, you also have to pay provincial sales tax. In the end, everyone that takes on default insurance means their principle monthly payments increase and you pay extra interest.

Pay Now or Pay Later

In Canada, the average house price is $433,367. If you have a 10% down payment, your default insurance will be an additional $9,361. If you have a five-year fixed mortgage of 2.59%, your monthly payments will be $1,807.

If you had a 20% down payment, your monthly mortgage payments fall to $1,569. And the total interest paid over the five-year term of the mortgage also falls from $47,681 to $41,390.

So is it worth it to wait two or three years to save up that 20% down payment? With housing prices rising five percent annually and interest rates poised to rise, you could end up paying more each month if you wait.

For many Canadians trying to get on the property ladder, it makes more sense to get into the market now than wait to scrimp and save a 20% down payment.

Canadalend.com: Helping You Find the Best Mortgages

If you’re looking to step onto the property ladder and don’t have the typical 20% down payment, it might make more sense to buy one now in this hot market than wait and pay more later. And with a smaller down payment, getting the best mortgage at the best rate is even more important.

That’s why it’s essential that you contact the licensed, independent agents at Canadalend.com . They’ll show you how different down payments and added default insurance impact your monthly mortgage payments.

To see what kind of mortgage you qualify for with your down payment, contact the mortgage experts at Canadalend.com today. Or apply online and one of our lending specialists will help you set up an appointment for a free, personal consultation.

Sources:

1. “Canadian home sales little changed in August,” Canadian Real Estate Association website; http://www.crea.ca/canadian-home-sales-little-changed-august.