Consolidation Mortgages: How They Can Save You Money
If you own a home and have a debt load you can no longer handle, one place to go to solve the problem is to the equity in your home. This can mean either getting an entirely new mortgage (sometimes called a debt consolidation mortgage) or applying for a Home Equity Loan or Home Equity Line of Credit. The best option for you will depend on how much equity you have in your house already, and how long you’ve had the mortgage. We’ll review all three options in this article.
Debt Consolidation Mortgages – Getting a new mortgage to consolidate your debt is a good deal for people who having been paying their mortgages very long. This is because of the way mortgage amortization schedules work – you pay most of the interest on your loan upfront. So if you have a 30 year mortgage and needed to get a debt consolidation mortgage, it would be much better to get the mortgage in the first ten years of your mortgage’s repayment, rather than in the last 10 years. In the last ten years, you’d have already paid all that nasty interest, and would now be paying your mortgage’s principle
With a debt Consolidation Mortgages you can combine all of your finances onto your mortgage and get a lower rate. Generally speaking the rate applied to a mortgage is going to be cheaper than any credit card or personal loan. The benefit of consolidating all of your loans on to a mortgage is that you will have one lower monthly payment that will save you hundreds of pounds each month and with only one monthly payment top take care of you will be able to keep track of your finances much better.
Getting the Equity Out: Home Equity Loans and Lines of Credit- Don’t think that someone who’s in the last ten years of paying off a 30 year mortgage is in worse shape that the person on only year three, though. Quite the opposite. Home equity loans and lines of credit are among the best options for a debt consolidation loan. If you meet the following criteria, all that interest you’ve been paying suddenly becomes a major tax deduction: you itemize your tax deductions, you are deducting interest for your first or second homes only, the loan is for no more than $100,000, the interest you want to deduct on any amount of the home equity loan can not be more than the difference between the market value of your home and your mortgage.
For example, say your mortgage is for $200,000 and the market value of your home is $250,000. You can not deduct more than the interest on $50,000 worth of your home equity loan. Of course, owing more on your home than its worth is a very, very bad situation in the first place. The biggest drawback with home equity loans and lines of credit is that your house is the collateral, so if you don’t change your spending and earning habits and turn your debting into saving, you could find yourself unable to pay the home equity loan, and then in a position where you could lose your house. Home Equity Loan- These debt consolidation options usually have a fairly low interest rate, but the rate can be variable. You take out a lump sum to consolidate your debts, then pay the home equity loan back with a fixed monthly payment. Be sure you understand the terms of the loan – those variable rates can turn a good loan into a bad loan.
Learn more about Obama Mortgage Relief Plan Qualifications.
