Debt Consolidation FAQs: Requirements and Application

Struggling to figure out if you qualify for a debt consolidation loan, and who you can trust to be your lender? This is where many Ontario homeowners feel discouraged, especially if traditional banks have already rejected them due to income or credit score challenges.

This is why 360Lending wrote this guide: Because we specialize in alternative financing. We negotiate directly with B lenders and private lenders who can be more flexible with their qualifications compared with major banks. This second part of our guide clarifies the specific requirements and shows you precisely which lenders can actually help you secure the capital you need.

Get clarity on what it takes to qualify right now, then you can explore our other guides on:

• Debt Consolidation FAQs: Definitions and Basics

• Debt Consolidation FAQs: Costs, Benefits, and Alternatives

Which Banks Offer Debt Consolidation Loans?

All of Canada's major banks offer unsecured personal loans and lines of credit for debt consolidation. However, these often require a good credit score 680+. For homeowners seeking larger amounts at a better rate, you will need secured options like a HELOC or refinancing. To explore all secured and unsecured options available, including lower rates from B-lenders, consult an experienced mortgage broker.

What Happens If You Miss a Mortgage Payment?

A single missed payment becomes a 30-day delinquency, triggering a significant drop in your credit score (50-100 points) and incurring NSF and late fees. If payment is not made within 90 days, the lender escalates to legal action (a Demand Letter) which is the precursor to a Power of Sale (foreclosure) proceedings on your home.

What Happens If You Can't Pay Your Mortgage?

If you cannot cure your mortgage arrears, the lender will start the legal process of Power of Sale (in provinces like Ontario) to seize and sell your home to recover the debt. To prevent this, you must pay the arrears and legal fees in full. This is often achieved by securing a second mortgage or refinancing the property through a specialized mortgage broker.

How to Use Your Home Equity to Pay Off Debt?

You use your home equity to pay off debt by securing a Home Equity Loan (Second Mortgage) or a Refinance to access a lump sum of cash. This cash is used to pay off all high-interest debts (like credit cards) at once. This effectively converts high-interest, unsecured debt into a single, low-interest, secured mortgage payment.

How to Consolidate Debt Into a Mortgage?

To consolidate debt into a mortgage, you first calculate your available home equity. Then, you apply for a Cash-Out Refinance or a Second Mortgage (HELOC or Home Equity Loan). The new, larger mortgage loan is finalized, and the extra funds are disbursed to you or directly to your creditors to pay off your unsecured debts.

Can You Get a Second Mortgage with Bad Credit?

Yes, you can get a second mortgage even with bad credit. While major banks require high scores, alternative and private lenders primarily base approval on the equity you have in your home (typically 20% to 25% minimum) and the marketability of your property, rather than your credit score.

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