What Is Loan consolidation? You don’t know it yet? You’ll find out thanks to us.

If you don’t know what a loan consolidation is, then this article is for you. consolidation – means transferring a loan elsewhere, preferably where the conditions are better. Either because of the interest rate or because of other parameters, such as the maturity of the loan. There may be a lot of reasons.

When can I consolidate a loan?

Here it is necessary to distinguish what loan. Whether it is a classic consumer loan or a mortgage. Consumer credit is more often used to consolidate loans than consolidate one loan. Simply combine multiple consumer loans under one big one. This repays one installment that often has better interest rates. You can do such consolidation almost anytime.

Mortgages are different. It also depends on when the mortgage was signed or. when the interest rate was changed for the mortgage, ie re-fixing. Without a penalty, the mortgage can be consolidated just as the interest rate changes. The bank can not charge you for this, and you can with impunity leave the existing bank and go elsewhere.

Does it even make sense to leave?

For mortgages, this is most often due to the above-mentioned interest rate. You can watch the latest developments on Hypoindex . Accordingly, you could guess how interest rates will continue to develop. However, according to current assumptions, rates will go up in 2019. But it may not always be about the interest rate. Try to compare the so-called fixation costs. More about this topic here .

Do you know the terms?

You can write about this subject infinitely and I believe that you have to get up to it. It just needs a specialist who can help you in this way. Well, acknowledge that most of us do not repair the car at home in front of the house and go straight to the service. That should be the case in finance. Tell the experts, this will be your best choice. And you know what, use the form below. Write what worries you and we will lighten your head.

Loan Consolidation under new conditions

 

Now, in these new restrictions, I will focus on one specific mortgage case – consolidation:

consolidation simply means transferring an existing loan to another bank . In the case of mortgage loans, this can be done at the time of mortgage fixation . Fixation refers to the period during which the agreed interest rate is fixed.

The limits also apply to consolidation cases. However, a distinction should be made between the ‘net’ transfer of a loan and the transfer of a loan with a credit increase.

As far as consolidation is concerned, banks do not have to monitor the parameters. However, irrespective of this, banks need to monitor whether there are circumstances in the client that increase credit risk. For example, there is a noticeable reduction in the applicant’s income , a significant increase in the applicant’s indebtedness, or a reduction in the pledged property price . Banks also while guarding differences in the past, and a new installment in the case of large fluctuations case should also examine in detail.

Talking about interest rates of around 1.79% pa , which were quite commonly available a few years ago . Now some mortgage rates are balancing at 3% . Such a difference in monthly payment may be significant.

Mortgage amount Due date Interest rate Monthly installment
CZK 2,000,000 30 years 1.79% 7 184 CZK
CZK 2,000,000 30 years 3% 8 432 CZK

In consolidation with a loan increase (eg for small reconstruction, construction of a garage, etc.) it is again necessary to distinguish two cases:

  • The first is the case of an increase in the existing mortgage balance by a maximum of CZK 200,000 or by a maximum of 10% . Then we proceed in the same way as in the case of “clean” consolidation.
  • If the increase in the current mortgage balance exceeds the above-mentioned 10% or CZK 200,000 , then the consolidation banks should be treated as a new loan and the applicant or applicants must also meet the and criteria.

In times of rising interest rates with clients, we are also dealing with longer fixation periods and consolidation now that rates are even higher. Here it is good to know that some banks allow consolidation up to 2 years in advance . E.g. therefore, if the fixation date is 1 December 2020 , for some banks the rate can be booked as of 1 December 2018 and not expected to increase further. The client will thus sign a new mortgage loan (refinanced) now, but will only start repaying it at the time of fixation, ie in two years .

And what are the good tips for consolidation in the end?

Applicants solve a lot of interest rate . It is also good to look at other terms and conditions of a mortgage loan, which may result in a lower interest rate than the higher rate. These include, for example, various conditions relating to insurance , maintenance of a current account (its charging or the price of other services related to it, such as withdrawals from other ATMs or withdrawals abroad, free outgoing payments etc.) or other services. And of course for the consolidation case, the cost of the estimate or the price for the cancellation and deposit of the liens in the cadastre must also be taken into account. Leaving it in the current bank is free (in the vast majority of cases it is not solved), but some banks offer, for example, a free estimate .

Tips for consolidating a mortgage loan with bad credit

If you are considering consolidating a mortgage, but you know that your credit is in a bad position, you do not have to resist the idea yet. It is possible to find bad credit mortgage lenders for a better rate on your mortgage, and to restructure your current payment plan to a more convenient one. Whether you have consolidationd before or are a new owner, here are some essential tips to help you get the best mortgage consolidation rates with bad credit:

Pay other loans to improve your credit score

It is recommended that you clear any outstanding loan before you start looking to consolidation your mortgage . Pay your current loans, this way will help improve your credit score because it will reduce your debt ratio, which will affect your credit utilization ratio.

Deal with errors in your credit report

Sometimes, your creditors may report erroneous numbers or erroneous accounts to credit bureaus, which can make it difficult for you to get refinancing without ever knowing why. You need to make sure that your credit report and your score are accurate, so that lenders base their credit assessment, according to the current, correct information, which increases the chances of getting a better score.

Do not buy fares too long

Purchasing rates for an extended period of time can result in a lot of visits on your credit report, which can be interpreted as a red flag by lenders, ultimately breaking your score. The recommended shopping period should be between 30 and 45 days, and if you are lucky enough to find a bad credit mortgage during this time, then your score will not be affected too much in relation to the extension of the period up to at 60 days.

Consider getting a co-signer

Submitting your consolidation application with a co-signer, who has good credit, will increase your chances of getting good rates with a bad credit mortgage. The co-signer will help you get approval, and that should be people you trust and who can trust you too.

 

How much can you consolidate your debts?

 

 

If you are an owner, you can use the equity (or equity) of your property to consolidating your mortgage loan. The liquidity thus obtained could allow you to realize various projects like … a refinancing of your debts .

Did you know that, according to the professionals , last year alone, about 10% of Canadian homeowners refinanced their mortgages for an average of $ 49,000?

So, if consolidating your mortgage loan is an interesting avenue for you, the first step is to determine how much you can claim.

In Canada, the maximum you can access is 80% of the equity in your home.

 

Calculating the amount from your loan consolidation

The equity value of your property is the difference between its current market value and the outstanding balance on your mortgage.

 

Scenario

Market value of your home: $ 250,000

The balance of your mortgage: $ 75,000

Maximum Loan / Value Ratio in Canada: 80%

 

The calculation of maximum loan consolidation :

Estimated market value x loan / value ratio

$ 250,000 x 80% = $ 200,000

 

The calculation of the amount you can dispose of on the net value of your property :

Limit of your refinancing – your mortgage balance

$ 200,000 – $ 75,000 = $ 125,000

Even if consolidating your mortgage loan gives you access to $ 125,000, if your total debt does not reach this amount, you do not have to add this amount to the balance of your current mortgage. You can borrow only a fraction of it.

 

When to consolidating your mortgage loan to pay your debts? Mortgage penalty

You can manage your debt from the equity of your property at any time . However to access this capital, various fees will be applied. For example, you will have to pay penalties if you terminate your mortgage early, before the end of your term (usually 5 years).

It is important to use a mortgage broker to assess whether loan consolidation to pay off your personal debts is good for you, especially if your loan has not expired.

A certified and seasoned professional will help you make an informed choice by calculating the costs of your mortgage refinance . It will take into account, among others, the:

  • Assessment fees of your house to know the market value
  • Mortgage penalty fee if your term is not completed
  • Fees for opening and studying your file
  • Legal fees (notary) if the amount of refinancing is higher than that of your original loan
  • etc.

On the other hand, by negotiating for you an interest rate lower than your current rate (fixed or variable, as desired), your mortgage broker could save you interest on your new loan, which would be a plus.

In addition, you could extend the amortization period of your new loan to reduce the amount of monthly payments.

Feel free to fill out the bid solicitation form on this page. In no time, the best mortgage broker in your area will contact you to offer you the best offers among 20+ financial institutions, lenders, banks, investors, trust companies …

Save time and money by using a professional, specialized broker who has previously shopped for you the loan consolidation products with the optimal conditions (term, early repayment, payment …) at the best interest rate (wholesale price) .

 

Concrete Example of Calculating a loan consolidation to Manage Your Debt

What is the limit of the loan that a financial institution will give you?

Amount to which your property has recently been assessed on the market $ 350,000
Amount you have to pay on your mortgage (balance) $ 150,000
Maximum value allowed for consolidating your mortgage loan 80%

 

Calculation of your borrowing limit $ 350,000 X 80%

(Market value X Maximum allowed value of your property for the loan)

$ 280,000 – $ 150,000

(The result obtained – The value of your mortgage balance)

$ 130,000

($ 350,000 x 80%) – $ 150,000

$ 280,000 – $ 150,000 = $ 130,000

Calculating your new mortgage

(if you use the full amount available)

$ 150,000 + $ 130,000 = $ 280,000

(Balance your 1st mortgage + your new loan)

By doing a mortgage refinance, you could borrow an additional $ 130,000, which would increase your mortgage balance up to $ 280,000.

Various types of mortgage refinance products are offered in the market. However, an interest rate associated with a mortgage loan is much more advantageous than that of a personal loan, since it is secured by the value of your home.

Consolidating the loan what is it?

When making decisions related to our finances, we should carefully analyze the home budget and be guided by reason. Sometimes, however, this may not be enough. We are not able to predict some of the situations. What do you do when you do not have the resources to pay your debt?

In many cases, consolidating the loan will be a good solution. How it’s working? Let’s see!

 Regardless of the amount, each loan carries a number of serious consequences. The basic one is commitment to timely repayment. Therefore, the acceptance of the application requires the lender to analyze our financial situation and credit history. It happens that for reasons unknown to us, we encounter the rejection of the application.

However, responsible lending lies at the heart of the lenders’ decisions. It applies not only to the borrower, but also to the creditor.

If there are financial problems in the budget unexpectedly, often the only thing we think about is finding a solution quickly. As a result, we forget to check whether we are sure that we are able to meet our obligations under the signed contract.

At such moments, the responsibility falls on the loan company, which also in the interests of the client analyzes its finances, and then decides whether incurring a loan does not involve too much risk. However, there are situations when, despite good prospects, repayment does not go our way. How to get out of trouble?

Consolidating the loan

In the face of financial problems, the most important thing is to keep common sense and try to find the right solution. Most people, when choosing a lender, do not pay attention to the consequences of untimely repayment or assistance offered by a given company in such situations.

We are convinced that these records do not apply to us. However, it is worth being aware of the available solutions and the possibility of receiving help. One of them may be loan consolidation. This service appeared relatively recently, so you should read its principles.

consolidating consists in launching appropriate procedures at the request of the borrower, the effect of which will be to provide financial assistance in the form of a loan by one of the companies cooperating with our creditor. It is worth remembering that the new commitment will be exactly the same amount as the previous one. However, when it comes to costs related to the service, you should expect to pay commissions.

To avoid cash flow liquidity problems between the institutions and the client, the money will be transferred directly to the account of the first lender. What are the consequences for us after using this solution?

How to apply for loan consolidation?

The loan consolidating service requires you to face repayment problems. It will be necessary not only to acknowledge the impossibility of meeting the obligations on time, but also to contact the lender. For many people, it can be a challenge.

Still, it’s better to get through the formalities required than to wait and see how our debt grows over time. Most companies require you to be willing to refinance the loan before the end of the loan period. The appropriate instruction should be submitted by completing the appropriate form in the customer’s panel or by calling the Customer Service Office number. The final form is governed by the internal arrangements of the lender.

Most non-bank companies providing this service do not require their clients to find a loan consolidation . Instead, we must give the lender permission to act on our behalf. This will allow us to save time and reduce the required formalities. However, it should be remembered that regardless of whether we look after the consolidating institution ourselves or the lender, using the service involves additional costs.

They depend on the price list set individually by the company and the amount and period of crediting the active liability. Normally, the payment of relevant fees will be required before the loan consolidation is implemented.

The repayment of the loan consolidation

The loan consolidating procedure may seem complicated for many people. However, in essence, it is one of the simplest solutions to problems with timely repayment of liabilities. After going through the whole process, the question is often asked who should be given the borrowed money. When we decide to take this step, we must be aware that the place of the first lender is replaced by a new creditor.

The former contract is terminated when the loan consolidation is booked and from that moment we are subject to the rules in force in the company that repaid our debt. The repayment terms of the new loan differ only slightly from those applicable to the first commitment.

As mentioned above, the amount of such financial support is equal to the previous value. For example, if we borrowed PLN 1000 in A, and then we reported the need to refinance, then company B offers us the opportunity to get help in the same amount. After completing all formalities, this amount will be transferred directly to the account of the first lender, and we will remain obliged to repay the debt in company B.

However, it should be remembered that the new lender, in addition to a refund of PLN 1000, will also require us to pay for the service, i.e. commission and interest. Detailed information on costs can be found in the contract or on the company’s website. The loan period may remain unchanged. It happens that lenders offer longer time to pay off the obligation. However, it is important to remember about the cost increase associated with such a decision.

How to solve your problems with debts? Consolidation of debts

In situations of risk and accumulated debts, there are ways to try to solve the problem. You can always find solutions in the financial institutions themselves , as well as through certain legal tools that can play in favor of the debtor and alleviate their situation. In the same way, designing an action plan for a rigorous management of income and expenses can be helpful for situations that are not so extreme.

How to solve my debts?

There are several ways to solve, or try to solve, the problem of debts. In the first place, it is possible to go to the financial institutions with which a debt is held. The key to this option is to propose a solution to the same institution through different options, such as the renegotiation of debt to reduce as much as possible the amount owed, get an extension in the term or other type of agreement.

Also, through the option of the reunification or consolidation of the debt

It is possible to agree with the entity to regroup several debts into one debt , being able to reduce the amount through a single payment.

Another way to solve a critical debt situation is to use legal tools that can act in our favor. Filing bankruptcy through the so-called Second Chance Act , designed especially for entrepreneurs and individuals who have contracted obligations that later have difficulties to comply, may be the best option, although to qualify for it must meet some requirements . In the same way, debt cancellation can be requested through an out-of-court agreement with the creditor, on whom it will depend to accept or not accept said proposal.

How to get out of debt in the short term?

In order to eliminate short-term debts, a strong control over the level of expenses and the amount of debts we accumulate is recommended, in order to avoid over-indebtedness that could complicate the payment of the same, emphasizing the most priority ones. Eliminating unnecessary expenses and reducing leisure (meals in restaurants, unnecessary purchases) is a difficult, but effective way to assume the payment of debts in the shortest possible time.

When it comes to taking overdue debts, the best option is to develop a budget and an expense plan to be very clear who is owed, how much and what is the risk that this debt continues to increase interest, as occurs with cards of credit. In these cases, it is recommended to make the minimum payment of the debts with the lowest interest rate, and dedicate most of the budget to the accumulated debt with the highest interest.

Finally, in case of a serious situation, you can go to legal advice through lawyers for debt and other help services for people with debt.