Mortgage for debt consolidation: what it is and how to finance it
Online mortgages for debt consolidation
Are you paying the installments of several loans? Then the idea of unifying everything in a Debt Consolidation Mortgage you might like, for several reasons.
The benefits of the single debt
It is curious, but do you know the main reason why the majority uses the Mortgage Consolidation Debt? The relief of having a single deadline! Although, as we shall see in the next subtitle, the motivations should be primarily economic.
But those struggling with numerous payments suffer due to the psychological impact of the large number of newsletters. He also struggles to plan for the future due to financial commitments of different durations. So bringing everything together in a single installment and in a single generalized loan lightens the mental pressure.
It will benefit the organization of family outings, which with all the other bills and taxes to be regulated will be easier to administer.
Save with Debt Consolidation Mortgage
In reality, a debt consolidation loan must be sought above all for the economic advantage it produces. By virtue of their nature, which is less guaranteed than mortgages, non-mortgage loans have enormously higher rates than those of a mortgage.
For example, at the beginning of 2019 the Bank Tally calculated an average rate of personal loans close to 10%, against 2.5% of mortgages. That is to say that replacing loans with a mortgage means saving up to 75% of interest!
In addition to saving insurance and payment costs that each loan brings with it and that the use of a consolidation loan tends to sterilize.
Although a mortgage represents a certain initial cost due to the opening charges, this will usually be amply repaid by the savings that will follow for years.
A subject specialist, such as those made available free of charge by Astro Finance, will be able to calculate the convenience of using the consolidation loan, considering in your case the economic advantages in relation to all costs.
The serenity of a reduced global installment
Another issue that is not just about the possible dilution of debt over time. In fact, a mortgage can be repaid in periods much longer than a personal loan and by adding this opportunity to the lower rate of the consolidation loan, one can obtain installments of the installment that literally change one’s life.
Example: we consider the case of two loans for a total of 30,000 USD to be repaid over 5 years at a fixed 8% rate. They will involve a monthly expenditure of 608 USD. Transforming them into a ten-year consolidation loan with a fixed interest rate of 1.50%, the installment will fall to € 269, immediately freeing up significant resources to improve the quality of life.
In important debt situations there is the possibility of extending the repayment up to 30 years, opportunities that some over-indebted customers have perceived as “coming back to life”.
The risks of improved financeability
The lowest installment that a debt meeting mortgage can guarantee will open the possibility of subscribing to new installment purchases. If on the one hand this may appear to be a tempting possibility, on the other hand the risk of magnifying the consistency of family debts must be considered.
Especially those who show a strong inclination to indebtedness could be induced to contract other loans able to quickly bring back the monthly financial expenditure to the pre-consolidation levels, but with a debt capital at that point much higher.
In this circumstance the temptation of a new consolidation with the use of a longer loan could trigger a vicious circle. Which in effect has led some families to excessive financial exposures compared to the potential to return within a reasonable time. And unfortunately often produced by purchases of a nature that does not improve the quality of life in proportion to the effort of repayment.
The higher cost of debt consolidation loans
Mortgages are certainly the form of financing that has the lowest possible cost. However, those aimed at consolidation are considered by the banks a little bit more risky than the counterparts for the purchase of the house.
It follows in many cases a different tariff. These are absolutely reasonable increases, in the order of 0.5-0.8%, not able to worry but in any case such as to make these mortgages less advantageous than the offers at amazing rates advertised when we talk about mortgages for the purchase of the House.
Possible future difficulties
A debt consolidation mortgage can pose some difficulty if you want to replace it. This is because the general tendency of the banking system is not to grant subrogation of loans obtained for liquidity or consolidation purposes.
This constraint can be unpleasant because few banks admit to using the alternative of replacing a mortgage without using the subrogation formula, fearing possible future legal disputes. So even the customer willing to bear the costs of opening the new mortgage with full replacement of the mortgage, could be in a stalemate without the possibility of changing the contract.
Added to this is the banking conviction that whoever wants to consolidate debts a second time is a serial borrower, an inclination that in credit terms can produce overexposure and the consequent greater risk of not being able to get back all the credits. A reason that further catalyses the tendency to refuse the granting of new consolidation loans.
The intervention limits
While a home mortgage is usually granted within the limit of 80% and in some cases even up to 100% of the value of the guaranteed building, debit consolidation loans are issued with more stringent LTV (Loan to Value) borders, including usually between 60% and 70%.
This is because, as was said above, they are considered more risky and the containment of the intervention guarantees the bank greater space in the event of forced enforcement of the credit.
Some lenders put restrictions also on the duration of the consolidation loan, claiming that it is not much longer than the residual one of the debts it will replace or that it will remain limited to an absolute maximum of 15 or 20 years. This is to limit the tendency for subsequent debts, that is the fear mentioned in the above section “Risks of improved financeability”.
However, this trend is not generalized, so it can be overcome by evaluating the opportunities offered by several banks, which can be easily delegated to a Astro Finance consultant.
The amount to be requested
The definition of the amount of the consolidation loan to be contracted requires the consideration of the following items:
- Residual capital of debts to be extinguished with the proceeds of the loan
- Penalties for settling debts
- Costs of opening the consolidation loan
Generally speaking, banks do not like to register mortgages in the second degree, so if the client is already paying a mortgage they will require that it also be paid off along with the other loans. To this end, the relative residual debt with any extinction penalties will be available to add to the new loan, thus allowing the registration of the mortgage at first instance .
Some banks also allow an additional liquidity quota to be added to the above. When this is possible, given the low interest rate of the loan, it may be interesting to increase the amount financed a little to set aside a sum destined for unforeseen events, so that it is always immediately available for a very modest interest expense.
Method of extinguishing debts to be consolidated
By releasing a consolidation loan, any bank will want to be sure that it does not add to the current debts but replaces them.
Since this is a prevailing requirement, to avoid adding up the pre-existing installments to the new one, the bank will demand that the extinction of the debts be ordered by the customer at the time of the stipulation of the notarial deed and more often than not will choose to deal with it directly.
For this reason it will be necessary to present the notary with the extinction counts of all the debts to be consolidated, perfectly updated. This can sometimes become problematic, because the extinction counts are valid up to a specific date, after which they lose their validity.
As it often happens that notarial deeds are postponed for a few days, when this happens it becomes necessary to request the updating of the counts of all the loans to be extinguished to the respective creditors. But since this can sometimes lead to weeks of waiting, annoying complications can arise for the reorganization of the act.
To overcome this problem, it is possible to use two types of solutions. The former recommends requesting the counts at a reasonably later date than that provided for the notarial deed. This will entail a small amount of damage due to the higher interest expense, but will safeguard against the delays produced by the last minute unexpected events.
Better still, as a second and more flexible opportunity, it is advisable to request dynamic extinction counts, that is, referring to a certain date but which increase by a figure specified for each day of delay on the expected date of extinction.