Debt consolidation mortgage loan comes with many form of secured loans, which are mortgage refinancing, home equity loans and home equity line of credit. Getting a secured loan for debt consolidation is good for you if you don’t have any other way out of your debt but borrowing from your home equity.
There are many sources that are ready to help consolidate your bills with second mortgage loans as lenders feel that fewer risks are involved if you own a home. In fact, the cost of the 2nd mortgage loans are so low that some lenders offer interest rates as low as one percent. With such a low-cost you will find it easy to repay the loan, with typical repayment periods consist of five to fifteen years.
Debt Consolidation Mortgage Loan Types
There are two options of debt consolidation mortgage loans: mortgage refinancing and home equity loan.
Mortgage refinancing is a low-cost source of funds for consolidating credit card debt. Because of falling mortgage interest rates, you can refinance your first mortgage for a lower interest rate.
Using the scheme you can reduce your mortgage interest rates and use the money to consolidate your debts. But as this is a secured loan when you borrow from your equity the mortgage amount you owed will increase. You’ll bear more risk of losing your house if you can’t repay the debt.
Getting a home equity loan or a line of credit loan is another option for you to consolidate debt. If you have less than perfect credit this loan may be the right one.
Home equity loans are dispersed as a lump sum, which is ideal for consolidating credit card balance. On the other hand, home equity line of credit offers a revolving credit account. You can also use this loan to consolidate debts, if you like a regular monthly payment instead of an upfront, lump sum payment.
When considering the two secured consolidation loan options you have to decide whether to seek lower monthly payments or overall cost savings. The reason is while debt consolidation can lead to lower monthly payments it isn’t always the lowest costs because you might end up paying more in the long run.
What to Do Before You Get an Equity Loan
Before taking out a debt consolidation mortgage loan weigh the pros and the cons of an equity loan. Also, learn how to compute your home’s equity value because that is what home equity lenders use to decide the cost and the amount of the loan you can get.
As lenders have different structure of loan costs and fees knowing about the components are essential for you to get the best deal. You want to set a schedule to repay the equity loan as soon as possible because a repayment plan helps set up your consciousness to repay the loan even before you apply for it.
How to Qualify for a Debt Consolidation Mortgage Loan
There are online companies that offer generous loan amounts with lower repayments on mortgage and interest. If you own a home and are looking for a loan to consolidate debts a home equity loan lender can help.
They may have a look at your mortgage to see whether your equity in the first mortgage is significant. The lending companies also check whether your debt to income ratio is low or within an acceptable range.
Consolidation lenders will check your three credit reports. If the reports show defaults, chances are they are reluctant to offer you a loan. However, if the reports show an effort to clear up the debts, the lenders may believe that you are still making effort to pay off your debts.
Lending companies will also need proof of income. This may include recent pay stubs. The stubs will help them decide which loans best suit your needs. Most equity lenders need up to three years of stable income to decide if you qualify for a debt consolidation mortgage loan.