Debt consolidation home loan
Its not uncommon to find people with more than one debt. You may have taken up a home mortgage, a car loan or made purchases against your credit card, and at the time of paying back it can be a real problem when youre surrounded by too many debts. With so many debts around, handling your finances can be very tough. But thankfully, debt consolidation home loan can help you to get out of this debt problem.
Debt consolidation is the most workable solution if this is carried out using a home equity loan. With the debt consolidation home loan you can put together your high interest credit card balance, personal loans, car loans and similar other debts, into an inexpensive, lower interest home equity loan with affordable monthly payments.
A home equity loan that you will use for debt consolidation is a secured loan with your property acting as the security for the loan. Until the time you pay off the total amount of the home equity loan, your lender will have a lien on your property. Even though your house remains pledged with the lender, you are still able to get rid of your creditors and prevent declaring bankruptcy.
The bundle of benefits:
Consolidation brings along a great saving opportunity for you, because you are using a comparatively inexpensive source of funds to get rid of those expensive debts. Not only will you end up paying a much lower amount towards the interest over the debts but also there would be a significant reduction in the monthly payments. Even if you maintain the same repayment term, this single monthly payment would be lower as compared to the sum of all the monthly payments that you were making earlier because of the change in the rate of interest.
Using the home equity debt consolidation home loan also carries some tax benefits, as the interest that you pay over such loans entitles you to a tax deduction. This tax benefit is not associated with most of the other types of debts such as credit cards, personal loans and car loans. To get the tax benefit, never let your total borrowings against the house be more than the appraised value of the property.
Debt consolidation using your home equity can also help you to steer clear of your bad credit ratings, since all your high interest loans appear to be settled out on your credit report. Further by making regular monthly payments for your debt consolidation loan you can further increase your credibility in the market, which will entitle you to better financial deals in the future.
Banks and lending institutions show an increased preference for debt consolidation loans which are backed up by home equity for two essential reasons:
Debt consolidation is often viewed by financial institutions as an effort on part of the borrower to sort out his financial problems, thereby he is assumed to be a more responsible borrower.
A good amount of equity in the house denotes a concrete financial plan, and at the same time the lender gets a reassurance that his money is safe and will be paid back. In case the borrower defaults in paying back, the lender can make good his loss by selling off the property.
When going in for a debt consolidation home loan, be particular about not picking up any other debts till this loan is completely cleared out or else you will only end up increasing the risk on your house. Credit cards are usually very tempting, so you must get most of your credit card accounts close down, once you have cleared them up with the consolidation loan.
For expensive debts such as credit cards, which usually carry a double digit interest rate, paying off the balance using a home equity
debt consolidation loan will make you realize instant savings. In such cases the interest rates will come down by more than 50 percent and the effect of it can be clearly seen on your monthly payments. The interest rate on credit cards is normally in the range of 16 percent to 28 percent while that on a home equity debt consolidation loan is below nine percent. After consolidation you can proceed further in two ways, firstly you can shift onto the lower monthly payment if affordability has been a problem or secondly you can continue with the same monthly payment to clear out your debts much earlier.
Using a home mortgage refinance:
For homeowners who already have a huge balance from their first mortgage can even consider a mortgage refinance for the purpose of consolidation of debts, provided the current interest rate is somewhat lower as compared to the interest rate applicable on the original mortgage.
For the purpose of debt consolidation you will have to take cash out Mortgage refinance, in which you take up a new loan which is much more than the outstanding balance of your first home mortgage and this difference in the two amounts can be used for the purpose of paying off your debts.
Using a mortgage refinance gets you an added advantage that your first mortgage loan also shift on to a somewhat lower rate of interest thus enabling you to save some more of your money. This not only saves you money but also makes it easier to manage your personal finances.
The bottom line:
Debt consolidation using the home equity loan is a great method to add in a little bit of breathing space into your tight budget and at the same time create some savings for the future. Not only this, it helps you to stay away from bankruptcy and allows you to build a strong credit history. To begin with get hold of the account details of all your debts along with the interest rates and then look for debt consolidation quotes from different lenders. A good research before taking up a home equity debt consolidation loan will keep your future prospects safe and get you the real benefits.
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