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Mortgage Loan Debt Consolidation

 
 

A mortgage loan debt consolidation is a loan you obtain, secured by your house, to repay other non-mortgage debts.

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To get a mortgage loan debt consolidation, you must own a home. In addition, the value of your home must be more than what is owing on your current mortgage, so that there is equity to serve as collateral for the lender.

The new mortgage loan could serve as a credit card debt consolidation loan, because you are using the new mortgage to repay all of your credit card debts, or you could refinance a student loan by borrowing against your house to repay the loan.

Because mortgage rates are lower than every other form of borrowing, it makes sense to trade a high interest loan for a low interest mortgage loan for debt consolidation purposes.

I want to get a mortgage loan debt consolidation, but I don't want to put the equity in my house at risk? What should I do?

This is a very difficult question to answer, and the answer will be different for everyone.

It's true that if you get a mortgage loan for debt consolidation purposes you are reducing the equity in your house. If your house is worth $100,000, and you have a $60,000 mortgage, you have $40,000 of equity in your house (the difference between the value of the house and the amount owing on the mortgage).

If you then go out and get a $10,000 mortgage loan to use for debt consolidation, such as to pay off credit cards, your house's equity has been reduced by the $10,000 you just borrowed. The mortgage loan reduced your equity from $40,000 to $30,000.

However, remember that a mortgage loan used for debt consolidation does not reduce your total net worth. It's true that the value of your house is now $10,000 less, but you have also repaid $10,000 in credit card debts, so your total debts are still the same: your mortgage loan is higher by $10,000, but your credit card debts have been reduced by $10,000.

You should only get a mortgage loan debt consolidation if you are confident that you can repay it. In most cases, the interest rate on a mortgage loan is less than the interest you are paying on your credit cards, so the reduced interest costs should allow you to repay the loan as fast as possible.

Saving on the interest is the main reason people get a mortgage loan for debt consolidation, and if you qualify, it is something you should consider as a way to reduce your monthly interest costs, and pay off your debts faster.

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