Debt Consolidation Mortgage Loans

If you’re in credit card debit, thinking of buying a new car, have home improvements you want to do, want to go back to school, or simply need some extra money for an emergency or a luxury, you may be considering debt consolidation mortgage loan. This loan would allow you to pay off some or all of your debts, by adding a little bit extra onto your mortgage payment each month.

What are Debt Consolidation Mortgage Loans?

Many people like the idea of debt consolidation, especially if you are doing a consolidation mortgage loan. These types of loans tap the equity that has built up in your home and take a loan out on that amount. Equity is defined by Harbor Federal as the current market value of a home minus any or mortgage loans. For example, if your home’s market value is $150,000 and you owe $50,000 on your mortgage, you have $100,000 equity in your home. So in a debt consolidation mortgage loan, you are taking out a loan for $100,000 (minus banker’s fees and usually a percentage that your bank will insist upon so you have some untapped equity in your house at all times). Of course you will be asked to pay that loan back through a higher mortgage payment.

Debt consolidation loans may also be referred to as home equity loans or lines of credit.

Pros of a Mortgage Loan

• Debt consolidation mortgage loans generally have lower interest rates than credit cards or other loans (depending on your credit, of course).
• These mortgage loans may be tax deductible.
• Rather than paying several different creditors or credit card companies, all at different interest rates, it may make sense to take out one large loan at, generally, a lower interest rate.

Cons of a Mortgage Loan

• You may only be solving your problem for a short amount of time. If you’re in credit card debit and you take out a loan to pay off your credit cards, but you don’t curb your spending habits, you will find yourself in debt again—and owing more money. In addition, you will probably not have the equity in your house that you can tap for emergencies, home improvement projects, etc.
• There is no guarantee a debt consolidation mortgage loan would actually be less than your current debt payments, once you factor in fees. Take interest rates and other bank and lending fees into consideration before pursuing this type of loan to make certain you will actually be paying less.
• If you take out a home equity loan, your house payments will go up. You will be paying more on your mortgage for a long period of time.
• One of the biggest problems with home equity loans is that if your house loses equity (as is currently happening in some housing markets) you could end up paying money on something that isn’t worth what you owe on it.
• You could also lose your house if you have to default on your loan—if you can’t pay your higher mortgage payment.

In Conclusion

Debt consolidation mortgage loans are good ways to tap into the equity of your home, but only if you fully understand both the pros and the cons of this type of loan.