Consolidating debt isn’t free. These costs come out of your savings, so include them before deciding.
Prepayment penalty
If you refinance before your current term ends, your lender may charge a penalty. On fixed-rate mortgages it can be large. Ask your lender for a written penalty quote. Waiting for renewal, or using a second mortgage instead, can avoid it. See which way to consolidate.
Legal fees
A lawyer registers the new mortgage at Alberta Land Titles and pays your creditors at closing.
Appraisal
The lender usually needs a current value for your home.
Lender and broker fees
Common with alternative and private lenders. They’re often added to the loan. A broker fee, if any, must be disclosed in writing.
Discharge fees
To remove your old mortgage from title.
Costs on the debts you’re paying off
Some debts charge to be paid early. Car loans and personal loans sometimes have payout fees, a lease buyout can cost more than the remaining payments suggest, and promotional financing may add back deferred interest if paid in a certain way. Ask each creditor for a payout statement.
A simple tally
Round numbers, for illustration only: legal fees and disbursements of about $1,200, an appraisal of about $400 and a discharge fee of about $300 come to roughly $1,900. Add a $6,000 penalty if you break a fixed mortgage mid-term, and the total is close to $8,000. On $40,000 of card debt at about 20%, you’d still usually come out ahead, but only if you pay the consolidated amount down quickly.
Rolling costs in
Most costs can be added to the new mortgage instead of paid in cash. That’s convenient, but you’ll pay interest on them too. Pay small costs up front if you can.
Keeping costs down
- Time it with renewal. See consolidating at renewal.
- Compare lenders on total cost.
- Ask about promotions that cover legal or appraisal costs.
- Borrow only what you need.
Weigh costs against savings
Use the steps in how to calculate your real savings. If an offer’s fees seem unusually high or are demanded up front, see red flags in debt consolidation offers.
This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.