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Home Loan Consolidation - Pay Debts with Home Loan Consolidation - When to Consider Home Loan Consolidation

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In this age of economic recession, many people have found that they have become buried in credit card debt as they have been trying to support themselves and their families. The lost jobs, lost wages, and uncertainty have left many in seeming ruin. For homeowners, however, there is a plan available that can offer some relief from debt, helping to pay it down at a lower APR and a lower total cost.

Home loan consolidation, also known as home equity loan consolidation, is a process whereby a homeowner can cash in on the equity they have built up by paying on the capital of their mortgage. As the amount owed on the capital goes down, the homeowner’s equity in the home goes up. The equity, in turn, can be used as collateral to receive a second mortgage. The loan is secured by the property and it usually comes at a lower interest than what is on your credit cards and other debts.

Once the new home loan is secured, the consolidation begins. Home loan consolidation works by using the money from the new loan to pay off the old debts. This eliminates most, if not all, of the old debts so all that is left to pay is the single debt on the second mortgage. This can help out individuals and families in hard times in one of two ways. If you pay back the debt in the same time frame, since the interest is less, the total payments on the debt will be lower. Another way it can help is by taking the home loan out for a longer term. This may not reduce the total amount paid on the debt, but it can greatly reduce the amount of the monthly payments. Sometimes a lower monthly payment is all that is needed to help a family out of a sticky financial situation. Once the situation blows over, and times have improved, increased payments can be made directly on the capital of the loan.

When to Consider Home Loan Consolidation

Home loan consolidation is a serious undertaking. It should not be entered into lightly. It should be an option of last resort, when all other options have been exhausted. Here are some indicators that it is time to consider home loan consolidation:

• You are charging more on your credit cards than you are paying.
• You are only able to make the minimum payments.
• Your credit cards have all reached their limits.
• You feel that you need new lines of credit to support yourself.
• Instead of paying off cards, you get a new one and transfer the balance.
• You constantly receive calls from creditors.
• You are missing payments.
• You have defaulted on one or more credit accounts.

Pros and Cons of Home Loan Consolidation

Home loan consolidation is not for everyone in every type of situation. The process should be weighed carefully with the understanding that there may be some downsides to the process.

Pros

• The interest is usually much less than it is for credit card debt.
• In many cases, the interest is tax deductible.
• Monthly payments may be less.
• One payment is easier to handle than several separate payments.

Cons

• In home loan consolidations, the loan is secured with your property. If you cannot make the payments, you will lose your home.
• Closing costs are added to the loan.
• If you do not pay more than the minimum, it will take the full length of your mortgage to pay off the debt, possibly resulting in a higher total payment.
• Eliminating credit card debt often creates the temptation to begin collecting new credit card debt.

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