Debt Consolidation Mortgage Loan - Pros And
Cons
by: Carrie Reeder
Debt consolidation mortgage loans can help you
lower your interest rates and monthly payments. With reduced rates, you can
also pay off your debt sooner. However, reducing your equity could subject
you to private mortgage rates. You may also end up spending more on interest
payments by delaying payments.
Saving With Mortgage Interest Rates
Mortgage interest rates are much lower than
credit card or unsecured loan rates. Consolidating your debt with a refinanced
mortgage or home equity will reduce your payments simply by having a lower
rate. By paying the same monthly payments, you can pay off your debt rapidly.
Your interest is also tax deductible with a
mortgage or home equity loan, where your credit card interest isn’t.
Student loan interest is also tax deductible and shouldn’t be consolidated
for a higher rate.
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Reducing Your Payments
Consolidating with a loan also allows you to
reduce your payments by picking longer terms. So if your income is reduced
or you have other financial obligations, lengthening your payments can give
you some breathing room in your budget.
Paying More In Fees And Interest
The cost of a mortgage can be more than what
you are paying in interest charges if you have a small amount of debt. To
refinance a mortgage, origination fees can add up to thousands. Other types
of home equity loans can cost hundreds or nothing to open. You may also have
to pay private mortgage insurance premiums if don’t leave 20% of your
equity in tack.
Delaying payments can also add up interest payments,
even with a lower rate. For example, a loan amount of $10,000 will cost
$11,587.10 in interest for a 30 year loan at 6%. That same amount will cost
$5,896.71 for a 5 year loan at 20%, which is what most credit card payment
plans are
like. |
Deciding To Pay Down Debt
Consolidating your high interest credit can
help pay off your debt by providing structured payments. You can also lower
your interest rates, making repayment easier. However, be aware of the costs
and shop around for low rates and fees. To get the most out of a consolidated
loan, choose short terms to avoid making large interest payments.
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