| It
may surprise you, but one of the most common forms of debt consolidation is a
mortgage.
| | | A mortgage is a loan secured
by a house, cottage, or other form of real estate. Banks and other lenders
love mortgages, because they are fully secured. That means if you cannot pay your
loan, the bank can take your house to get their money back. This is of course
different from other types of lending, such as credit cards, which are unsecured,
meaning the lender cannot seize an asset if you don't make your payments. |
I see why a bank would like me to get a mortgage, but is it really
a good debt consolidation option?Banks like fully secured lending, but
mortgages can also be a good deal for you, the borrower, for a number of reasons. First,
mortgages carry the lowest possible interest rate, usually half or even one third
of the rate charged on a credit card, which is one of the most expensive forms
of borrowing. By using a mortgage as a form of debt consolidation, you increase
your mortgage and use the money to pay off your high interest rate credit cards.
This reduces your monthly payments, and can help you get out of debt faster. Second,
a mortgage generally has a fixed interest rate. You can lock in the interest rate
for a long period of time, often for five or ten years. Knowing exactly what your
payments will be for the next ten years brings you peace of mind, which can lead
to financial security. Third, in the United States, the interest you pay
on your mortgage is often tax deductible, so not only is the interest rate low,
but your payments are further reduced by the tax break you receive when you file
your taxes. As with all types of lending, some caution is necessary. Even
though your house may have increased in value, don't over borrow just because
you can. You don't want to fall back into debt, which can happen if you take on
too large a mortgage payment.
If you have equity in your home, and can afford
to make the payments, a debt consolidation mortgage may be the best way
to reduce your monthly debt payments, and get back on track financially. Use our search box for more information:
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