Debt Consolidation Mortgage Loan, A Matter of the Right Choice

Debt consolidation mortgage loan may be the option if one has several debts.  Some debts like the credit cards may incur high interest rate.  So do the mortgages and other loans.  There may be a need to borrow from another lender to pay off some of the debts.  The option here could be debt consolidation.

The payment per month can be reduced with obtaining a consolidation mortgage loan.  This is in fact popular in Canada where the lender will provide a mortgage for as high as 95% of the home value.  This will reduce the payments either through refinancing the current mortgage or securing a second mortgage.

How will taking a second mortgage on a home save one some money?  Well, say one has a credit card balance of $25,000 that incurs 18% interest.  The interest payment alone on this debt is $375.00 a month.  Compare that with how much will it cost with a second mortgage for the same amount.

The second mortgage for the same amount with say 5% interest for a 15-year term will cost one $200 of monthly payment.  Now it does not take neither a rocket scientist nor a brain surgeon to know that the monthly payment of $200 is much less than the $375.00 one is paying for the credit card interest each month.

Wait a minute, for that's not all.  Remember that the $375 monthly payment for the credit card covers only the interest.  Compare that with the $200 monthly payment that covers both principal and interest and the choice is clear.  So the savings is not only for interest alone but also for paying off the debt with a reduced monthly payment.

There could even be more savings with the government offering mortgage help.  There are programs in place that may help homeowners who are planning to refinance or modify their loans.  According to the Federal Reserve, the rate of zero to 0.25% will be kept for the benchmark federal funds.

Not only that, the announcement is for this low rate to continue for a longer time due to the economic turmoil.  This is good news for borrowers who have an adjustable-rate mortgage.  The same is true for those who want to refinance. 

So you see the homeowner can obtain a debt consolidation mortgage loan.  In this case, remember that the home is used as a security so commitment to the repayment plan is a must as there is the risk of losing the house if there is a default.  The house remains the lien that the lender holds until the full amount is paid.

Make sure that what is saved is put away for emergency.  And emergency means just that.  It will cover situations that could spell life or death.  So take a look at the credit cards and put them away.  Do not cancel them as doing that, some say, may impact the credit rating.

The option we have been discussing will keep the creditors away.  It may also prevent filing for bankruptcy but make sure to be careful about spending money freely or the same thing could happen or could be worse than before obtaining the debt consolidation mortgage loan.

By Roger Guzman, M.D. and Evelyn Guzman

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