More Facts About Debt Consolidation Home Equity Loan
January 29th, 2010 Posted in Mortgage InfoWhat kind of loan is a debt consolidation home equity loan? This is a loan that is a cross between two different loan programs that have been around for quite some time. The home equity loan borrows against the equity you have in your home. The debt consolidation loan rolls all your unsecured debt into one lower payment. When you are in need of a lower monthly payment and do not mind a longer payment term, this loan could be the one you need to get out of the spot you are in.
Debt consolidation loans are good to relieve financial pressure of monthly expenses and can help you out of a crunch. If you have a number of loans that are for signature loan, auto loans, or credit card debt and the total debt is 13,000. 00. The payment on this is 450. 00 each month. With one of the consolidation loans you can stretch out the payment for 6 years and the payment is 232. 00 each month. This is an excellent way to get your payment lowered.
The second half of our hybrid loan is against your home equity. With enough equity in your home, this kind of loan can be quite easy to secure. A creditor will be much more likely to approve an equity loan as he uses the home as equity for the collateral. If you owe 100. 000. 00 on your home and it appraises at 200,000. 00, you have 100,000. 00 in equity.
The catch is that you can borrow only 70% of the house value. That means that in the eyes of the bank, your house is only worth a value of 140,000. 00. In this instance, you will only qualify for a loan of 40,000. 00. The length of the loan will be somewhere between 5 and 20 years. The same 15,000. 00 loan would have a length of payment of 10 years and a payment of 142. 00 each month. The equity line of credit will give you a longer repayment period, thus, lower payments.
The consolidation loan will give you lower monthly payments at the cost of longer repayment period. This is a wonderful loan if you are in a real pinch to get a little more free cash each month.
One of the pitfalls of the debt consolidation loan is credit qualification problems. If you have already been experiencing a hardship before you finally applied for the loan, this can cause you to pay a much higher interest rate or in some cases, not be able to qualify for the loan at all. The trick is to apply for the loan if you see the trouble coming, not after you have been in the middle of personal financial hardship for 5 months.
This type of loan can be a great thing for your situation and could save much stress and hardship. Just know that by using the equity in your home for a consolidation loan can continue to hold up a large chunk of your equity in your home for a long while. If the values fall you may end up owing more than what your home would appraise for.
Talk to a financial loan professional before you make any decision like this and just use good common sense.
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