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What kind of loan is a debt consolidation home equity loan? This is a loan that is a cross between two different loan programs that have been around for quite some time. The home equity loan borrows against the equity you have in your home. The debt consolidation loan rolls all your unsecured debt into one lower payment. When you are in need of a lower monthly payment and do not mind a longer payment term, this loan could be the one you need to get out of the spot you are in.
by EddieLamb
What kind of loan is a debt consolidation home equity loan? This is a loan that is a cross between two different loan programs that have been around for quite some time. The home equity loan borrows against the equity you have in your home. The debt consolidation loan rolls all your unsecured debt into one lower payment. When you are in need of a lower monthly payment and do not mind a longer payment term, this loan could be the one you need to get out of the spot you are in.
First, I would like to discuss the loan that we are talking about. A debt consolidation loan, by itself, works like this. You have 8 bills for credit cards, an auto loan, and 2 small signature loans at a small lending institution. The total balance is $14,500 in debt. Your current payment is $426. 00 every month. A debt consolidation loan will roll all these loans into one and stretch out the length of payment to 5 years. The new payment will be$246. 00 per month.
The equity loan on the other hand is a loan secured by the equity your home has built up. With enough equity in your home, you can be approved for one of these loans quite easily. This is because the collateral will be your home. Equity works like this, if the home has a value of 200,000. 00 and you owe 100,000. 00, the equity is 100,000. 00.
However most equity loans are only up to 70% of value. That makes the value of your home as far as the bank is concerned for the loan, $165000. 00. So you would be able to get a loan of $20,000. 00. This loan would be for a term of 5 to 20 years and could considerably reduce your monthly outlay. The same$14,500. 00 borrowed above, borrowed on a ten year debt consolidation home equity loan, and would have a payment of $152. 00.
You will usually pay less pr month on an consolidation loan but most of the time you will be paying for a longer period of time. If you are in great need to reduce your monthly outlay, this can be a great deal for you and save your credit rating too.
There are some downfalls to the consolidation in some instances. If you are in a spot and have been for a while, made a few late payments, or more than a few late payments, you may have to pay a higher interest rate or not get the loan at all. The real skill here is to see the trouble coming before it arrives and secure the loan then, not after you have been in a real bind for five or six months.
A debt consolidation loan can be a good thing and save you much hardship and heartache. However, you must be aware that the debt consolidation loan that is using your home equity as collateral can continue to take a big chunk out of the equity for a long time. If home values fall, you could be in debt for more than your home is worth.
Just use good judgment and think wisely before using your home equity to consolidate debt. Always seek the advise of a financial lending professional to help make a wise lending decision.
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