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Necessary Facts About Mortgage Consolidation Loans

Jan 26, 2008
While there are many positive aspects when it comes to getting a mortgage consolidation loan, it is wise to note that there are also risks involved.

Mortgage consolidation loans tend to attract a certain amount of positive attention. These loans can definitely lower the interest rates of your debts and lower the monthly amount that you have to pay to manage your debts, which will enable you to pay off your loans sooner. There are, however, also some risks to these loans, and it is important to note that even one late payment can cause your interest rate to increase dramatically.

When compared to unsecured loans or credit cards, the interest rates on mortgage consolidation loans are much lower. By refinancing your existing mortgage, you can pay off your debt much faster thanks to lower payments and interest rates. By paying on time each and every month, you can get out of debt faster with a mortgage consolidation loan than with any other type of consolidation loan.

The interest rates on mortgage consolidation loans are also deductible, so you can get more savings. And as with any other debt consolidation loans, mortgage consolidation loans lengthen your payment terms, which lead to reduced monthly payments.

If you have multiple debts, you can consider one of these loans, but do some research first. If the total of your debts is relatively low, you can end up paying more than the total of your debt in interest payments. The origination fees on mortgage consolidation loans can total thousands of dollars as well, making them better suited for people with large amounts of debt. In addition to these things, if you do not have at least twenty percent equity in your home you might also have to pay premiums for private mortgage insurance. Add to these risks the fact that one missed payment will raise your monthly payment rate.

Interest rates on consolidation loans are higher for people with a bad credit history. The interest rates can be as high as 30%. This interest rate will only benefit a person if the interest rate is still much lower than the sum of the interest rates on the previous debts combined, like credit cards, utility bill arrears, among others. Consolidation loans are risky in that you actually risk losing your home if you are delinquent in your payments.

How large your mortgage consolidation loan can be is dependent on the current market value of your home. Like with any other loan, you should compare offers from multiple providers, taking into consideration interest rates, payment terms, and the length you are going to be repaying the loan.

With mortgage consolidation loans, there is the option of taking out a second mortgage on your home. This results in the redfinition of your original mortgage. The mortgage will then be paid monthly for a fixed amount of time, somewhere between ten and thirty years.

With a second mortgage, you can prepay the loan without accruing a penalty. A secondary benefit that is also quite beneficial is that the interest rates on the second mortgage are tax deductible. Keep in mind, though, that with a second mortgage even a single missed payment could result in the repossession of your home.

A revolving line of credit can also be had under consolidation loans. A revolving line of credit allows homeowners to use the same amount of credit for a specific time period. In a revolving line of credit, interest rates are variable to market conditions.
About the Author
Searching for information on debt consolidation loans , credit card consolidation or any type of loan consolidation? Consolidation Loans Advice is a massive resource for information on all aspects of loan consolidation. Get the facts.
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