What You Need to Know About Consolidating Your Debt into a Mortgage
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Homeowners who have high-interest debt from loans or credit cards that are making it difficult to manage their finances may be able to use their home’s equity to help ease the struggle. A debt consolidation mortgage combines the money you owe into one, typically longer-term loan which will provide you with the funds you need to pay off several debts at once so that you’ll have just one loan to pay rather than having to make multiple payments.
One recent report as noted by CNBC found that homeowners have over $6 trillion worth of collective, tappable home equity which would be enough for each one to pull out $150,000. Whether you purchased your home among houses for sale in Chicago, or anywhere else, there are a few things you should know about this type of debt consolidation.
Advantages of a Debt Consolidation Mortgage
With homeowners often gaining a large amount of equity, it’s a no-brainer to be able to access that money to reduce the higher interest rates that often come with financed cars, student debt, and credit cards. Just remember that you’ll still be required to pay your debt, the loan is only designed to make repaying more manageable.
Look Closely to Determine How Much the Loan Will Cost You
Before committing to this type of loan, be sure you know how much it will cost you by reading the terms and conditions, including the length of term, fees and interest rate. For example, if you’re repaying a mortgage at 4 percent and a credit card at 18 percent, the rate difference is obvious. The term length is important too – if you repaid a $1,000 debt over five years at an interest rate of 16 percent, you’d pay just over $459 in interest with a monthly payment of under $25. But if you were to repay it over 30 years, while your monthly payment would be less than $5, you’d pay over $717 in interest.
Debt Consolidation Mortgage Loans are More Conservative Today
During the housing boom, lenders allowed homeowners to refinance and cash out as much as 110 percent of the value of their homes, but today, lenders require homeowners to keep at least 15 to 20 percent equity after cashing out.
Qualifying for a Debt Consolidation Mortgage
In order to qualify for a debt consolidation mortgage loan, lenders will look at factors like they do for most times of loans and lines of credit including proof of income, credit history, financial stability, and home equity.
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