Should I Consider a Debt Consolidation Mortgage?
Contributed by Melanie Vannuys
Should I Consider A Debt Consolidation Mortgage?
A debt consolidation mortgage is another name for a home equity loan. A home equity loan is a way to get a large amount of cash at reasonably low interest rates and certain tax advantages. However, a debt consolidation mortgage, or home equity loan, requires you to use your house as collateral for the loan. While most people may not see this as a problem, for some, it could be. If you are not a responsible debtor and don't pay your bills on time, this should be the last option. The simple reason being, with your house on the line, if you fail to repay the loan, your house is gone.
Furthermore, these types of loans have one large final payment, or balloon payment, that may require you to borrow MORE money to pay off the initial loan. It's a vicious cycle that you really should avoid if at all possible. If you try to sell your home while still under this financial obligation, you will be required to pay off the loan that way.
If Not a Debt Consolidation Mortgage, Then What?
There are other ways to get easy access to money to pay off your debts. You may want to consider a second mortgage installment loan. Yes, this type of loan is still using your home as collateral, however, the money is usually loaned in one lump sum instead of a series of advances like the home equity loan. Plus, the second mortgage usually has a fixed interest rate and fixed payment amounts to allow you to budget.
Another option is to consider lines of credit that don't use your home as collateral. You can consider your credit cards or unsecured lines of credit that you write checks against. However, your credit needs to be in tiptop shape to qualify for an unsecured line of credit.
If it's not debt consolidation you're after, but money for college tuition or a new car, there are specific loan types for this and those may be your better bet.
