Facts About Debt Consolidation Home Equity Loan
What exactly is a debt consolidation home equity loan? This is kind of a hybrid between two types of loans, both the age old debt consolidation loan and the all famous Home equity loan. If you are considering consolidating your credit card, auto loan, and other unsecured debt into one lower payment then all of them combined, this may be the loan for you.
First, I would like to discuss the loan that we are talking about. A debt consolidation loan, by itself, works like this. You have 8 bills for credit cards, an auto loan, and 2 small signature loans at a small lending institution. The total balance is $14,500 in debt. Your current payment is $426. 00 every month. A debt consolidation loan will roll all these loans into one and stretch out the length of payment to 5 years. The new payment will be$246. 00 per month.
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.
There are some downfalls to the consolidation in some instances. If you are in a spot and have been for a while, made a few late payments, or more than a few late payments, you may have to pay a higher interest rate or not get the loan at all. The real skill here is to see the trouble coming before it arrives and secure the loan then, not after you have been in a real bind for five or six months.
Even with the good points of the consolidation loan, the one thing you must keep in mind is that you will tie up a significant portion of your equity for a long period of time. If house values fall, you may end up in a situation where you have no equity left or at the worst, owe more than your house is worth.
Just use good judgment and think wisely before using your home equity to consolidate debt. Always seek the advise of a financial lending professional to help make a wise lending decision.
What exactly is a debt consolidation home equity loan aka bad credit home equity loan? This is kind of a hybrid between two types of loans, both the age old debt consolidation loan and the all famous Home equity loan.
categories: home equity loan,equity loan,loan,debt consolidation,consolidation,credit card debt,second mortgage,mortgage,finance,fixed rate
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