Mortgage Home Loan Debt Consolidation through Refinancing

Happens often, happens to all kinds of people: debt grows to levels where payments are not comfortable any more. There are several solutions, the one that interests me here is the mortgage home loan one.read more information from my latest blog post.

A debt consolidation loan is a loan taken to pay off other debts. That’s true even when the loan is a mortgage loan, when you refinance and use equity to pay off other loans.

In the years immediately following the 2008 mortgage meltdown, it might not seem like a good idea to talk about refinancing mortgage loans to consolidate debt. But it is. If you are among those people who have equity in your home, which is a good part of the home-owning population (75% of homeowners in the Chicago area, for instance, according to a news story I heard on FM 92.7 today, 03-02-2012, are not upside down… Well, they put it the other way, 25% owe more than their homes are worth.)

As you make mortgage payments, the amount of principal you owe decreases. At some point, you owe less than the home is worth. (The point might be many years into the mortgage, or not.) You make improvements to your home, the value of your home might be higher than what you owe on it.go to http://www.nytimes.com/2015/02/07/your-money/home-loan-programs-let-buyers-put-less-down.html?_r=0 for more information.

In any case, if a home is worth more than what you owe on it, you have equity. The equity can be extracted, used any way you want. The smart way to use it is to consolidate debt.

When you consolidate debt, assuming you completely eliminate obligations, you reduce the amount of payments you’re required to make to service the debts two ways (usually):

1. you get high interest rate loans out of your life, sweep them into the mortgage loan (which carries lower interest rate)

2. you reduce the number of minimum payments you make and that reduces the total amount you must pay

You can extract equity from your home two ways:

1. by refinancing your home loan
2. by taking out a second mortgage.

You would take out a second mortgage if the 1st mortgage loan has such a sweet interest rate compared to what’s available when you’re looking to refinance that it makes no sense to refinance.

You can, of course, take out a personal loan to consolidate debt. Often people are presented with credit cards with varying interest rates. It makes sense to transfer debt from a credit card with an interest rate of 17%, say, to one that has only 12%.
Of course, you have to pay attention to fees.

Sometimes transfer fees are so high as to ruin the beauty of debt consolidation yet people do not notice. In essence, they end up owing more (though the monthly payments might be lower).
But, done correctly, this is another way to reduce the amount of monthly payments and get out of debt sooner.

But I’m really talking about taking out a personal loan (bank, friend, relative) and use that to pay off other unsecured debt (because the total monthly payment would be lower).

Mortgage Home Loan

The other option you have, if you want to use debt consolidation services.

Contrary to what some people think, these kind of service companies do not lend money, necessarily. What they do, usually, is work with your creditors to lower the amount you have to pay. They might advise you to refinance or take out a second mortgage too

Related Posts:

  • No Related Posts