I think you’ll agree with me that owing money and not being able to keep up your payments is one of the worst feelings in the world. If you own a house and you are under pressure from creditors due to late payments, this post is for you.
I’m going to share with you how a second mortgage, in combination with a debt settlement plan, can save you some serious money.
In this post I’m going to share with you 5 amazing benefits of using a private second mortgage in combination with a debt settlement plan to eliminate your debt and sleep easy at night.
The 5 amazing benefits include:
- A reduction in dollar amount owing to your creditors
- A reduction in interest rate paid
- A reduction in monthly payments
- Immediate improvement to your credit score
- A built in exit strategy to refinance with your 1st mortgage
When life gives you lemons.
There are any number of crummy situations life can throw at you to put you behind on your payments. Once the collection calls start, it can be difficult to know what your best options are, and there can be a tendency to freeze, paralyzed with fear, making you just want to bury your head in the sand.
Accessing the cash bricked up in the equity of your home with a 2nd mortgage can provide great relief to settle quickly and perhaps even save you a bit of money.
Here’s a real life example…
This is a real situation that came up a few months ago, worth sharing to illustrate the power of using a 2nd mortgage and debt settlement plan to relieve pressure.
My clients fell on bad times due to a serious health scare.
Prior to the family health emergency they had borrowed heavily to leverage their family landscaping business. In the midst of the most critical phase of their business growth, cancer reared its ugly head. Business ground to a halt and debts went unpaid while their focus was on treatment and recovery.
12 months later, the bank was garnishing payments from their bank account for a business line of credit and credit card companies had sent the debt to collection agencies.
Unfortunately creditors do not share much compassion for illness.
Luckily our clients had a bit of equity built up in their home.
With the equity we were able to pull out some money through a private 2nd mortgage. At the same time we worked with a debt settlement company to negotiate with the creditors on the borrowers’ behalf.
The results were awesome. These are real numbers:
| Details | Before | After | Net Changes |
|---|---|---|---|
| Total Owing | $93,580 | $67,757.97 | $25,822.04 |
| Interest Rate | 19.99% | 11.99% | 8.00% |
| Annual Interest Costs | $20,701.19 | $8,124.18 | $12,577.01 |
| Monthly Interest Costs | $1,725.10 | $677.02 | $1,048.08 |
| Annual Min Payments | $39,303.60 | $8,124.18 | $31,179.42 |
| Monthly Min Payment | $3,275.30 | $677.02 | $2,598.28 |
| Annual Balance + Costs | $114,281.19 | $75,882.15 | $38,399.04 |
As promised there are 5 amazing benefit worth highlighting out of this example that can be achieved by any one who needs to use a 2nd mortgage to settle debt with their creditors.
1 – Reduction in principal owing
At this point it’s worth clarifying one thing; debt settlement is not the same thing as debt consolidation. In debt settlement we are trying to negotiate down the principal amount owing. Debt consolidation is simply a case of borrowing from Peter to Paul (who charges less in interest).
How is it possible to pay less than what you owe?
This is where a good debt settlement company comes in. Debt settlement companies understand what creditors want and expect for recovery of their delinquent accounts.
They are able to use the funds from the private 2nd mortgage to negotiate a lump-sum settlement with each of your creditors and/or collection agencies. Because the expectation of repayment on delinquent accounts is so low your debt settlement company can settle your balances in full at a fraction of the total principal amount owing. Since we are able to secure a private 2nd mortgage to get all the money up front your creditors are usually eager to settle.
If that isn’t worth it I don’t know what is.
2 – Reduction in interest paid
Unsecured credit card debt typically carries for 19%-24%.
A private second mortgage can be arranged for anywhere between 10% – 14% depending on the amount of equity available in your home.
So swapping out your high-interest debt with lower priced secured mortgage debt can cut your interest expense in half. Definitely a positive outcome.
This in turn is going to help you pay less interest in total and reduce your monthly carrying costs.
3- Reduction to your monthly carrying costs
Since we are able to reduce the balance and the interest rate, this translates into a lowered monthly carrying cost to improve your cash-flow situation.
With the improved cash-flow created by the 2nd mortgage, you can strategize how best to direct your cash to improve your overall financial situation.
4- Start rebuilding your credit score sooner
One of the biggest reasons to consider a private 2nd mortgage along with a debt settlement plan is because it will allow you to start rebuilding your credit sooner.
The reality is that once your payments with your creditors falls into arrears your beacon score will take a nose dive.
Prolonging the repayment and settlement with your creditors will just mean that your score will remain low farther into the future. This is not particularly helpful because if you want to refinance your existing 1st mortgage or apply for credit (i.e car loan, line of credit etc…) with a low credit score you’ll be left with expensive unattractive options and rates.
It’s like a vicious circle – if you can’t get back into the mainstream with your financing you’re only left with expensive options, prolonging your recovery.
That’s why the second mortgage can nip the problem in the bud and allow you to recover much sooner.
5 – 2nd mortgage provides an exit strategy
Here’s the problem. Most institutional lenders (both A & B) will not be able to refinance your mortgage while you have collections outstanding.
However they will refinance your mortgage to consolidate a 2nd mortgage.
So acquiring a 2nd mortgage to settle your debts and collections has a built-in exit strategy. With your debts paid in full and your credit score quickly recovering within 12 months, you should have an opportunity to refinance the 2nd mortgage into a new first mortgage.
About debt settlement
Simply put, debt settlement is an approach to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment in full.
Certainly you can DIY this solution with your creditor(s) by contacting them directly, however it can be challenging. Some creditors have policies preventing them from settling directly with you. You might also face some less advantageous settlement rates opposed to dealing with a debt settlement company and a lot of run-around hassle connecting to the right person.
The value of a debt settlement service.
Debt settlement services work for a fee built into the settlement amount. However, because they have experience dealing with creditors in bulk, debt settlement companies often get great reduced principal amounts between 35%-50%.
Looking for a debt settlement company?
If you’re looking for a reputable settlement company based in the GTA I recommend my friend Josh Balner from Strategic Credit Solutions .
Josh brings decades of experience in collections and debt settlement services to you and our clients have always been pleased with the outcome.
If you own a house and you are under pressure from creditors, consider a 2nd mortgage.
Don’t sit on your asset! Use the equity you’ve built up to secure a private home equity 2nd mortgage loan and settle with your creditors. Sleep easy at night again.
As a Toronto based mortgage broker specialized in private home equity financing and fund manager of Hansa Mortgage Investment Corporation I’ve helped many borrowers leverage the equity in their home with a private 2nd mortgage to work with a debt settlement company.
So if life throws you a curveball use that equity to solve your debt problems.
Looking for a trusted mortgage broker to guide you through applying for a 2nd mortgage home equity loan? Fill in the quick form below and it will be my pleasure to work with you.
