Debt Consolidation Mortgage - 5 Key Secrets You Must Know That Other Homeowners Do Not!

Many times modern homeowners get taken in by the advantages of a debt consolidation mortgage. However little do they realize that just as every coin has two sides to it, so does a mortgage housing loan also have its own advantages and drawbacks.

It’s therefore essential to know the various kinds of debt mortgage consolidation loans available in the market before jumping to any one of them.

The Second Mortgage on the Home Equity Loan

Many homeowners opt for a second mortgage on their original home equity loan. By doing this they get a fixed tenure for making the payment as well as a pre-defined interest rate on the original housing loan. The duration could be anywhere from 10 to even 30 years!

The good thing is that in such a kind of debt consolidation mortgage loan you don’t need to pay any penalty for prepayment and the interest is tax deductible. The flipside is that if you happen to default even once you might just loose out on your home altogether!

Line of Credit on a Home Equity

Basically when house owners take to using their house as a form of collateral, they are setting up a revolving credit line. That basically means that in such a debt consolidation mortgage loan the credit amount maybe reused over and over again.

However the line of credit needs to be kept open only for the pre-determined stipulated period of time. Otherwise one might need to pay even a penalty. Interest rates are usually variable which can be good during optimal market scenarios.

However paying only interest can accumulate more liabilities and debt relief may then become more difficult.

Home Refinancing Might Be a Good Option

If you happen to find a debt consolidation mortgage loan which is offering you a much lower interest rate than what you’re paying at present, then it might be helpful.

The principle of such a scheme is very simple. It basically involves using the other mortgage housing loan to pay off the current loan outstanding amount. If the interest rate on the other loan is significantly lesser than the one you’re paying, it can save you a lot of money in the process.

The major drawback of home refinancing is the amount of closure fees needed to be paid. These fees can work out to a substantial amount and even a lower interest rate may not help in saving much money for you.

Small Outstanding Amounts

Sometimes your debts may not be that large to be suitable for a debt consolidation mortgage loan. Most of the time the interest rate and fees offered by mortgage lenders are quite high. So if you have a small amount of debt you might actually be spending more money on monthly fees and interest alone!

Longer Duration

Most of the time, the monthly payment towards a debt consolidation mortgage loan works out lesser if the payment duration is extended.

If you have financial obligations of your own it might make more sense to spread out the duration of payments over longer payment tenure. This way you will end up paying lesser each month on your debt consolidation mortgage loan.