Do you have many financial liabilities and their total amount is slowly beginning to overwhelm you? To catch your breath and reduce the scale of your monthly fees, you may want to consider getting a consolidation loan. Contrary to appearances, you can choose not only the cash one. Another option is consolidation under a mortgage. What is the solution? When does it pay off the most? What criteria must be met to be able to use it? Here’s everything you need to know about it.
Consolidation or what?
Let’s start by explaining the key concepts that you need to know to be able to consider using financial instruments available on the market. The first key point: what is consolidation?
It’s a solution that you can consider if you’ve made several different financial commitments. Bank loan, installment for a car, payday loan, credit card limit, holiday loan … these are just a few of them, which may require you to pay a considerable sum.
Consolidation is, simply put, a combination of them under one commitment. In practice, it is about taking out a bank or non-bank loan that will cover previously taken loans, payday loans, etc. After paying for them, you cease to have obligations to previous lenders, and in return you have one, slightly higher than the sum of those. In effect:
- you pay one simple installment,
- you close previous commitments,
- you can usually spread out payments over a longer period of time, which translates into a lower monthly installment.
Therefore, repayment takes place more calmly, without straining your home budget.
Consolidation into mortgage or cash?
The second important issue is choosing the form of taking a consolidation loan. If you use the services of experienced brokers, you can expect a cash or mortgage option. How are they different?
- The cash loan usually amounts to a lower amount and the repayment time is shorter – all due to the fact that you need solid security confirming your financial possibilities. And it depends primarily on the amount of monthly revenues and expenses that rest on you. It should also be remembered that on the other hand the cash version of the consolidation loan requires less formalities – sometimes all you need is your ID card, income statement and verification at BIK.
- Consolidation under a mortgage, as the name implies, is granted against the property of the borrower. Such a guarantee, whose value is usually at least several hundred thousand dollars, means that the loan amount may be higher and the repayment time – longer. You can also expect lower interest rates or a preferential bank commission. It also happens that this form of consolidation is easier to obtain – it involves less risk for a bank or other lending institution. However, all formalities may take longer.
So, as you can see, consolidation under a mortgage can be a particularly good option when:
- the total amount to which the current liabilities are based is very high,
- you expect the repayment to be spread over many years – so that the monthly installment is relatively low,
- you want to increase your chances of getting a loan – a good argument especially for “difficult loans”.
There is of course one more condition that you must meet: you must have property that you can use as collateral.
What conditions must be met to lead to consolidation under mortgage?
The basis is the already mentioned possession of real estate that meets certain criteria. What is going on? A property that can pledge such a consolidation loan must:
- be your property – if you are only a co-owner, the other owners must agree to charge the mortgage or it will be necessary to divide the property (separation of separate property) – it all depends on the conditions set by individual financial institutions,
- have a “free mortgage” – ie no other entry on the mortgage can be entered in the land and mortgage register, nor can it be encumbered with other easements.
The procedure for obtaining a consolidation mortgage is similar to obtaining a “standard” mortgage loan. So it will be necessary, among others determining the value of the property by an appraiser, as well as determining the detailed repayment terms.
If you want the consolidation under mortgage to be carried out efficiently and the terms of the loan you have received, then use the help of experts. Thanks to this, you will be sure that you will settle your existing obligations and repayment of the new one will be simple, convenient and the cheapest possible. In the case of consolidation under a mortgage, this is particularly important because it usually applies to large amounts and is spread over a dozen or even several dozen years. That’s why you can’t afford even the slightest compromise.