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