"A dress that zips up the back will bring a husband and wife together."James H. Boren
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Cash Out Refinance – Home Equity Mortgage Loan or Cash Out Refinance
There are some definite benefits to doing a cash out refinance. Just make sure that overall you are not going to be spending more money in fees and interest doing a cash out refinance as opposed to a home equity loan. When you do a cash out refinance, you ...
The Debt Free Lifestyle
Many people have been taught that you cannot get ahead without debt. We are also inundated with advertising telling us we can have anything we want. All we need to do is put it on our credit card.We have become an impatient society, we want it right now. ...
What Your Mama Never Told You About Debt Consolidation Services
When someone is extremely deep in debt, and he or she has no other options to prevent bankruptcy, debt consolidation can be his or her savior. Debt consolidation can also be a very wise choice for someone who has many debts on high interest credit cards. ...
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Now that the frenzy of refinancing has tapered off, many mortgage lenders have turned to alternate methods of marketing their services. Many banks have started pushing harder to sign up customers for home equity based debt consolidation loans.
On the surface, debt consolidation loans offer cash-strapped consumers some relief from high interest rates. Looking deeper, consumers should be wary of both the pros and cons of this fast growing practice.
In their simplest forms, debt consolidation loans are refinance agreements, second mortgages, or home equity loans. All three loan options allow homeowners to cash out part of the equity in their homes in order to pay off other debts. For borrowers who have watched their homes appreciate in value, a debt consolidation loan can eliminate the burden of multiple monthly payments without significantly affecting the amount of their monthly mortgage payment.
On a mathematical level, debt consolidation loans can make much sense. A home owner who struggles to make the monthly minimum payments on her 21% interest rate credit cards can roll those balances into her 7% mortgage. The debt doesn't go away, but the rate goes down by two thirds. In many cases, she would only continue to pay about the same amount per month for her mortgage, freeing up her cash flow for other uses.
As a side benefit, borrowers can deduct a portion of their mortgage interest payments from their income taxes each year. Though not a huge savings, many taxpayers love the opportunity to look forward to a larger tax return.
The danger lies in the borrower's loss of security on two levels. First, if a home should suddenly depreciate, a debt consolidation loan customer could quickly find himself or herself "upside down" on the loan, owing more than what the house is worth. As long as that borrower continues to make payments, they'll survive. But, they will be unable to sell their home without absorbing a loss. For families who need to move in order to accept job transfers or pursue educational opportunities, this can be a devastating blow.
Second, although the lending bank handles paying off the customer's outstanding debt, the customer must personally close their old credit accounts. For many customers, the temptation to keep those accounts open is far too great, and they find themselves deeper and deeper in debt. In effect, the debt consolidation improved their cash flow, but reversed their financial course. Without immediate intervention, these customers often find themselves on the road to bankruptcy.
When investigating debt consolidation loans, consider your long-range plans. If you intend to stay in your current home for a long time and can handle the potential risk of depreciation, and if you can exert the willpower to close out your paid off charge accounts, then a debt consolidation loan may be a reasonable option for you.
About the author:
Kevin Adelsberg is a writer for FDLoans.com
For additional articles and an extensive resource for
everything about loans, please visit us at
http://www.FDLoans.com
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