Considerations Before Applying For A New Personal Loan
Before you take out more debt, its a good idea to take a step back and consider whether you truly need to borrow the money.
Loans come with interest that accrues over time, so you are paying more for the borrowed money as the loan amortizes. If you can instead save for your goal by trimming expenses or taking on a side hustle, that can help you spend less in the long term.
Carrying a lot of debt relative to your income can also make it harder to qualify for other loans you might need, such as a mortgage loan and another personal loan.
Instead of applying for a new loan, it may be wiser to work on paying off existing debt first. The last thing you want to do is dig yourself into a deeper financial hole. Taking on more debt, aside from adding more stress to your life, also puts you at greater risk for defaulting on payments, and can lower/hurt your credit score.
The most important thing is to borrow responsibly, which includes having a plan to pay it back.
Rolling Debt Into Mortgage Canada
With the mortgage interest rates being as low as they have been over the past few years, it often makes a lot of financial sense to roll high-interest debt into a mortgage. While mortgage rates continue to hover near historic lows, credit card rates continue to be sky-high.
The amount of interest paid on a $10,000 debt at 4% is a lot less than at 20%, for instance. You could be saving a great deal of money every month by paying a much lower rate on the same debt amount, helping you pay it off much faster.
Want to know if the interest on your mortgage is tax deductible in Canada? .
Should I Finance My Second Home With Home Equity
Whether youre purchasing a primary home, second home or investment property, a home equity loan can be an advantageous way to fund the down payment for the purchase of another house. Determining if an equity loan will best fit your needs depends on a few factors:
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.
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A Personal Loan / Home Improvement Loan
Youve probably come across home improvement loans and seen these recommended as a great way to finance an addition. But what youre probably not aware of is that these are commonly unsecured personal loans that are marketed at those who are looking for a way to finance a home improvement project.
For most homeowners, neither personal loans or home improvement loans are going to be the best way to finance an addition for two reasons: limited borrowing power and a high interest rate.
Of course, a higher interest rate means higher monthly payments and its worth noting that these can often be somewhere between 8% and 15%. On credit cards, this will usually be even higher.
A personal loan will also typically have far shorter repayment terms than other loan options, further increasing your monthly payments .
That said, because of the quick and simple application process and the ease to obtain, personal loans can be tempting for lower-cost projects that other options wouldnt be suited to, despite not being the best financing option for most homeowners looking to finance an addition.
How Much Can You Borrow
Whether you hire a contractor or take on the work yourself, begin with an accurate estimate of what the project will cost.
Lenders will insist on a specific figure before they work with you. If you’re hiring a contractor, start with a firm bid, broken down into labor and materials. Then add on 10 percent for surprises. On work you’ll do yourself, compile a detailed materials list with quantities, costs, and an accurate total. Include permit fees and equipment rental. Then add a cushion of 20 to 30 percent to be safe.
Once you know how much you need to finance your home improvement project, how much will you get? Despite the promises and hype lenders make in their ads and promotional materials, how much you can borrow hinges on your credit rating, the loan-to-value ratio, and your income. These factors also help determine the interest rate, the length of the loan, and whether you’ll pay points.
Your credit rating. The best rates and terms go to homeowners with an A ratingno late payments in the last 12 months and no maxed-out credit cards. One or two late payments or overdrawn credit cards probably won’t knock you out of the game, but you might end up with a higher interest rate and a smaller loan.
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Can You Add Renovation Costs To Your Mortgage
Home renovations can add a lot of value to your home both in terms of your houses market value and in terms of your own enjoyment. Major home renovations however can be quite expensive, and if you do not have all of the money saved up, you will have to borrow it from somewhere. One option that appeals to many homeowners is adding the cost of renovations to your mortgage aka a home improvement mortgage.
This option makes sense particularly if you have built up equity in your home and if the renovations will increase your homes value. It is certainly a better option that putting the renovations on high-interest credit cards!
Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our loans reporters and editors focus on the points consumers care about most the different types of lending options, the best rates, the best lenders, how to pay off debt and more so you can feel confident when investing your money.
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Things To Consider Before Getting Another Loan
The benefits of taking out a second personal loan depend entirely on the circumstances. You should never take on more debt than absolutely needed. However, even the best financial planners cant always predict life events that impact your finances. Before taking on your second personal loan, consider the following drawbacks.
What If You Want To Borrow More In Personal Loans
Unsecured personal loans are available from a variety of banks, credit unions, online lenders, nonprofit organizations, and other institutions.
If youve already taken out a personal loan but need additional funds, you might be wondering if you can increase your current loans amount.
In most cases, the answer is no. But instead of increasing your loan balance, you may be able to apply for a second loan. This can have similar consequences as increasing your existing loan amount, however, so the same warnings above apply here.
While eligibility can vary by lender, in some cases in order to qualify for an additional personal loan, you need to at least have made three consecutive scheduled payments on your existing loan. Theres no guarantee that youll receive another loan when you apply; it depends upon many factors. To be prepared, it helps to understand the general process.
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Learn More About Home Loans
Cash or mortgage which is more suitable to buy an investment property?
A mortgage is a popular option for people who dont have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.
When do mortgage payments start after settlement?
Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.
Usually your settlement agent will meet the sellers representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.
Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.
What are the features of home loans for expats from Westpac?
When does Commonwealth Bank charge an early exit fee?
The Early Repayment Adjustment and Administrative fees are applicable in the following instances:
Which mortgage is the best for me?
How do I apply for a home improvement loan?
How does a mortgage calculator work?
Borrowing For Other Major Purchases
If youre looking to pay for something expensive other than home improvements or investment property start by looking at your options where the loan is not secured against your home.
For example, you could:
- take out an unsecured personal loan or other unsecured lending, which means your home isnt at risk
- apply for car finance, if you want to buy a car read our guide to;Car finance
- save until you can afford to pay for whatever it is you want without borrowing money.
Although in some cases these options might not be as cheap as getting a further advance, they wont be secured against your home.
Its important to understand the true cost of borrowing and the consequences of not keeping up with your repayments.
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How To Add An Owner To A Mortgage Deed At Closing
When you close on a home, you have no idea what the future will bring. Whether you stay in the house for a few years or a few decades, your circumstances will likely change. If you later get married or find a life partner, adding someone to a mortgage without refinancing isnt possible, but you can add someone to your deed.
TL;DR
You cannot name additional parties on your mortgage loan, but you can add someone else to the property deed.
How To Manage Multiple Personal Loans
Defaults and late payments on personal loans affect your credit more than defaults and delinquencies on credit cards. So if you are in a situation where you have to make tough choices about which bills to pay, prioritize the payments on your personal loans first.
Another thing that youll want to do to manage multiple personal loans is to identify which loan you could funnel extra payments into. This could be the loan with the smallest principal amount of the loan with the highest interest rate. If you pay off that loan early, you will save money in interest and can use the monthly amount you were paying on the loan and channel it toward your other debts or into an emergency fund.
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Why Add Your Partner To Your Mortgage
The only advantage of adding your partner to your mortgage would be if you want to borrow more money and you need your partners income to be assessed as well in order to so. For couples who are planning to start a family and upgrade their home or move to a pricier location, taking on a larger mortgage may be necessary to fund this process.
EXAMPLE Alex and Emma get married
Alex and Emma have been living in Alexs one-bedroom apartment in the inner-city since they got married last year. Emma has been contributing to the mortgage repayments since she moved in but her name is not on the loan as it was taken out before the couple met. With the couple looking to start a family soon, and move closer to Emmas;parents for support, they start looking at three-bedroom houses in the suburbs. They determine that they will need to borrow an extra $500,000 to get the sort of home they want and with $300,000 still left on the existing loan they will need to refinance to a loan that allows them to borrow $800,000 all up. Alex knows that he wont be approved to borrow this amount of money with only his income taken into account so Alex and Emma decide to apply for the loan together to provide a more accurate picture of their household income now that they are married.
Pros
- Can base borrowing capacity on two incomes
- Opportunity to shop around for more competitive;loan
Cons
- Reduces spouses capacity to;take out other loans
- Risk of being rejected if your spouse;is not eligible for the loan
Making Your Loan Payments
The repayment of your personal loan is by monthly by Direct Debit from your current account, or an account that accepts Direct Debits. The amount and the number of repayments will be set out in your Loan Agreement.
Before signing the Loan Agreement, make sure you can make the monthly repayments, and that you’ll have enough money in your account to do so.
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Increasing My Mortgage What Is A Further Advance
A further advance is when you take on more borrowing from your current mortgage lender.
This is typically at a different rate to your main mortgage.
This route can make sense if:
- your lenders further advance is competitive
- you dont want to remortgage or switch lenders.
You can spread your payment over a long term and your interest rate should be lower than a personal loan.
But always check the market to see if you can get a better deal before committing.
What You Need To Know About Additional Borrowing
- before you accept our offer, the rate can vary and be withdrawn without notice
- if you refinance any existing debts you may pay a higher rate of interest or make repayments over a longer term. This means that you may pay more interest overall;
Find out more about our loans, including fees and charges, by visiting our FAQs page.
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Applying For A New Personal Loan
If youve decided that borrowing makes sense for you, its possible to apply for an additional personal loan with SoFi. Since you already have an existing loan, you may already meet the eligibility criteria, but youll want to make sure nothing has changed.
Once youve reviewed the eligibility requirements, you may choose to submit your application. You can find out what interest rate and term options you may qualify for in about two minutes, based on a soft credit pull that doesnt affect your credit score. If you move forward with a full application, a hard pull on your credit report is a likely next step.
Dangers Of Rolling Your Current Car Loan Into A New One
The biggest danger of rolling your current car loan into a new loan is that you could end up owing more on the loan than your car is worth. You will more than likely still be able to sell that car in the future, but the chances of recuperating your losses are very low.
If you buy a new car, you are, automatically, upside down on the loan. The car depreciates as soon as you drive it off the lot since it is no longer considered new. When you add in your current loan, you compound the problem.
As you continue to not pay off car loan balances and roll them into new loans, you can find yourself thousands of dollars in debt over the amount a car is worth.
For example, if you financed a car for $26,000 with no down payments, and you managed to get a low-interest rate of 3% with financing for 48 months, you might be looking at payments of about $575 per month. The total loan value is close to $27,623.
If you sell the car three years later, you ended up paying $20,700 on it, leaving $6,923 on the loan. If you sell the car to a dealer, they will want to make money on it as well, so a generous dealer might give you $10,000 for it. Your new car costs $26,000 as well, and you received the same rates as before on your new loan.
If you made no down payment, your new car now costs you $32,923 , unless you apply that $10,000 as a down paymentin which case you now owe $22,354 in a four-year loan, with monthly payments of $507.
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You Risk Falling Into A Debt Cycle
Be careful of falling victim to a debt cycle where you are perpetually taking out additional personal loans and digging yourself into a financial hole. This can be one drawback of getting another loan. If you find yourself frequently taking out new personal loans, it might be time to examine your finances. Look at your monthly income and expenses and decide if there are fundamental changes you could make that would put you in a better financial situation.
What About My Spouses Right To The Property
You may think that having your spouses name on the mortgage for the property will demonstrate their ownership but the truth is, just because a person is listed on a mortgage, does not mean that they immediately have ownership. This would require their name being on the title deed.
If there is a relationship break down in future and the property has to be split as part of divorce proceedings, whether or not your partners name was on the deed or mortgage will also become of little value. While each case will be different, if you and your spouse have been sharing the home, they will be entitled to declare an interest in the property. Legal advice should be sought in all matters of this nature if you require more information.
For De Facto couples, property settlements following a split will take into account a multitude of factors, much like in a divorce. These can include whether formal or informal financial assistance was given by one partner to the other but it will not require the partners name to be on the mortgage as proof of this assistance.
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