Bad Debt Management

Is a Low Interest Debt Consolidation Loan
Right For You?

Because many homeowners have high interest credit card debt, they take out a debt consolidation mortgage loan. By using their home as collateral, they can get a low interest debt consolidation loan. There are many types of mortgage loans used to consolidate debt. However, before you rush to sign up, be sure to do your homework. It could save you a lot of grief.

Should You Consider a Debt Consolidation Mortgage Loan?
The first thing you need to do is figure out how much equity is in your home. Here's what you do. Get the current assessed value of your home. This is what your house is currently worth. It is not what you paid for your home. Then, look up what you still have left to pay on your home. The difference between these two figures is your equity.

If you have very little equity in your home, a consolidation mortgage loan is probably not your best option. Also, if you plan to move in the future, beware of getting an additional mortgage loan. Here’s why.

First, if you borrow more money against your home, the total amount of money you borrow may be more than the current market value of the home. Should you decide to move, you may not be able to sell your home for the money you have borrowed against your home. Thus, you have personal debt left over that you must pay. You don’t want to have more debt because of home ownership.

Second, if you have a second mortgage on your home, you may encounter a lot of hassle with your lenders. That means you may have a difficult time even putting your home on the market.

If either of these conditions exists, be extremely cautious. Don’t consider any type of mortgage loan without getting debt management counseling. Also, if you have had problems managing your money, get help to overcome your bad debt management habits before you assume more debt. You don't want to loose your home.

If a bill consolidation loan is still a good option for your, add up the total debts you owe. Write down how much you owe for each credit card, the interest rate, your currently monthly payment and your outstanding balance. Write down any additional debts you want to pay off with a mortgage consolidation loan. You will need this information to obtain a debt consolidation loan from your lender.

Three Types of Debt Mortgage Consolidation Loans
Most people consider one of three mortgage loans to consolidate their debt. All mortgage loans use your home as collateral. So, be careful. Don’t over extend yourself or you run the risk of loosing your home.

Home Refinance Loan
Home refinance loans are good if you can find an interest rate lower than what you are now paying. What you do is get a loan from one lender to pay off your current home mortgage. You then use a portion of that money to pay off your debts. This option is particularly attractive when the interest rates are down.

Before you finalize a home refinance loan, be sure to check out the fine print. Find out how much you will have to pay to get the new loan. Your lender usually refers to these as closing costs and points. If you have to pay a lot of money to get the new loan, you may only be increasing your personal debt. Don’t do it.

Home Equity Line of Credit
A second type of mortgage loan is called a home equity line of credit. This is simply a revolving line of credit, which uses your home equity as collateral. You can withdraw and pay back the money as you need to.

The interest rate you pay is usually tied to the prime rate. That means it will vary from time to time. At a minimum, you will have to pay interest each month. However, paying only interest is not a good idea. When you pay money on your principal, your monthly payment will be reduced.

A home equity line of credit loan is normally set up for a set period. It varies from five to ten years. You cannot close your line of credit loan without paying a penalty. However, if you’ve paid off your line of credit, then you have no payment obligation. If that were the case, you would be wise to stop borrowing money from your credit line and close it when your specified period is completed.

If you have not paid off your line of credit by the end of the period, your mortgage loan automatically converts to a variable principal and interest loan. Depending upon your original agreement, you may have as long as fifteen years to finish paying off the loan.

Home Equity Loan – Second Mortgage
Last, but not least is the second mortgage loan. This loan is simply another loan against your house. Your total home debt is the sum of both your original and second mortgage loan.

Be very careful. Many financial institutions advertise they will loan you up to 125% the value of your home. If you borrow more than your home is worth on the open market, you are asking for problems. The market is constantly moving up and down. If you get in a situation where you have to sell your home, you could easily end up having substantial debt left over after the sale of your home.

The advantage of a second mortgage is that it is a fixed interest rate over the life of the loan. That means you’ll pay the same amount each month. Another advantage is there is normally no penalty for paying off you loan early. Finally, the interest you pay on a second mortgage is normally tax deductible.

If you own a home and have equity in it, a consolidation mortgage loan can help you free up the cash you need to pay off your higher interest bills. Be sure to check out several different financial institutions. Ask them to give you their loan quotes in terms called APR rate. The APR rate is the projected yearly interest rate after factoring in fees, closing costs and interest rate. This will help you get a true comparison.

Because of the huge competition and variety of choices, you should be able to get a debt consolidation mortgage loan that is just right for you.

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Lending Tree Mortgage Refinance Loan