Have you ever heard of a debt consolidation mortgage? Do you know how it works? I guess you have already heard a lot about debt consolidation because of the growing advertisements everywhere. However, a debt consolidation mortgage is a complete different concept. In a debt consolidation mortgage, you use your home mortgage or a refinancing (second mortgage) on your home as collateral for the mortgage loan. Here, you can use the equity of your home to pay off other debts as credit card debt.
A debt consolidation mortgage may be an efficient instrument to resolve debt. However, it is actually a medication with many risks and side effects. In a debt consolidation mortgage, your monthly payments quickly decrease through consolidating several debts into a single security against the value of your home. Simply, debt consolidation mortgage is a new mortgage that combines many high interest debts (credit card, car loans etc.) and the balance of your mortgage.
Benefits of a Debt Consolidation Mortgage
- A debt consolidation mortgage helps you to avoid filing bankruptcy.
- It completely eliminates creditor harassment.
- A debt consolidation mortgage can lower your payments from 50-60%.
- A debt consolidation mortgage leaves you with only one monthly payment.
- It wipes out late fees and over limit fees.
To become eligible for a debt consolidation mortgage, you should have a net value of at least 10% on your home. Secondly, a bad credit score can certainly ruin the probability of getting the loan.
Example of a Debt Consolidation Mortgage
Home: $110,000 at a rate of 5% over 30 years – $591 /month
Personal loan: $15,000 at a rate of 11% over 6 years – $286 /month
Credit cards: $9,000 at a rate of 18% – $826 /month to pay off within 12 months.
Total payment – $ 1703/month
What a Debt Consolidation Mortgage Provides
Single balance of $138,000 ($116,000 + $12,000 + $10,000) at a rate of 3.5% over 25 years – monthly payment of $689.
Total monthly savings of $668.
As a debt consolidation mortgage leads toward financial recovery and helps to improve credit score, these days many people are opting for debt consolidation mortgage to consolidate all their payments in to a single one. By this, the debtor can also become debt free within 2 to 3 years and avoid bankruptcy.