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Pitfalls of Debt Settlement Companies

Beware of empty promises from debt settlement companies.

How many times have you come across an ad or website from a debt settlement company promising to help you reduce your debt by 50, 60 or even 70%? Or that you’ll be completely free of debt within a year without any damage to your credit rating? As tempting as these promises might be, you’re better off steering clear of them.

Here are just a few red flags that might indicate a debt settlement company isn’t on the up and up:

Until recently, there’s been little or no legislation overseeing debt settlement companies, which has left the door wide open for abuse. Many consumers have been duped by these companies, often ending up in greater debt or facing lawsuits because creditors weren’t willing to wait two or three years to get their money back.

  1. You’re required to pay a large fee upfront.
  2. You’re promised that, by enlisting the help of the debt settlement firm, your credit rating won’t be affected. The fact is, even if you’re making smaller, regular payments through a settlement service, it can have a dramatically poor impact on your credit score as all of your debts.
  3. You’re told that you’ll no longer receive phone calls from creditors or collection agencies.
  4. You’re asked to lie about your assets to get lower settlements – however, doing this can actually void any previous settlements arranged by your creditors.
  5. You’re encouraged to let accounts that are in good standing deteriorate to “help” with their negotiations. In reality, you need these accounts to be in good standing to help re-establish your credit.
  6. You’re informed that your debt will be presented to a large financial institution along with other debtors as a lump sum settlement offer as it’s “more appealing”. The truth is, cases are reviewed on an individual basis. And because debt settlement companies have been abusing the system for so many years, there’s a strong likelihood that offers will be dismissed.

While a few provincial governments are finally cracking down on debt settlement companies, the negative media attention these firms have attracted in recent months have left lenders and consumers wary – and rightly so. But if debt collection companies aren’t a good choice for helping you manage your debt and you’ve already been turned away from the banks, what other viable options are out there for you?

For home owners, using a mortgage brokerage is the safer, smarter option to managing debt.

One of the safest, smartest ways to take control of your financial situation is to enlist the help of a mortgage brokerage. Not only can a mortgage broker help you leverage the funds you need to pay down your debt, you also never have to worry about upfront fees – plus, any consultations you have with your mortgage broker are free.

Other reasons to choose a mortgage brokerage over a debt settlement service:

  1. Your creditors will be paid out right away, which means there’s less risk of legal implications and you can start working on rebuilding your credit rating sooner rather than later. In many instances, homes can be refinanced in as little as two weeks. Most creditors are more open to working with mortgage brokers vs. debt settlement firms so they’re more likely to be flexible in extending you time.
  2. Secured creditors aren’t interested in negotiating with debt settlement companies. Mortgage brokers, however, are in a better position to help you payout debts like property tax arrears, Revenue Canada, liens and executions.
  3. If you have enough equity in your home, a mortgage broker can often secure a home equity line of credit that will enable you to pay off high interest debt and get your credit rating back on track. It can also provide a financial safety net of sorts in case you need to get a re-advancement in an emergency.
  4. If you have high interest credit card debt, a mortgage broker can help you convert it to a low interest secured loan.

What’s more, the mortgage brokerage industry is highly regulated by the government, so the risk of any misdealing or corruption is significantly lower. If you’re facing a tough financial situation and have considered contacting a debt settlement company, know that there are safer, more reliable options available to you. Using a mortgage brokerage to clear up your debt is a step in the right direction.

Feeling overwhelmed by debt? We can help. Call 1 888-939-8484 to speak directly to one of our expert mortgage brokers.