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What exactly is a debt consolidation home equity loan? This is kind of a hybrid between two types of loans, both the age old debt consolidation loan and the all famous Home equity loan. If you are considering consolidating your credit card, auto loan, and other unsecured debt into one lower payment then all of them combined, this may be the loan for you.
by EddieLamb
What exactly is a debt consolidation home equity loan? This is kind of a hybrid between two types of loans, both the age old debt consolidation loan and the all famous Home equity loan. If you are considering consolidating your credit card, auto loan, and other unsecured debt into one lower payment then all of them combined, this may be the loan for you.
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 second half of our hybrid loan is against your home equity. With enough equity in your home, this kind of loan can be quite easy to secure. A creditor will be much more likely to approve an equity loan as he uses the home as equity for the collateral. If you owe 100. 000. 00 on your home and it appraises at 200,000. 00, you have 100,000. 00 in equity.
Most loans on equity will only lend up to a certain amount, lets use a figure of 70% of value. In the example above, the home is worth 200,00. 00 and the owner has 100,000. 00 in equity. However, for the equity loan the lender will consider the value to be 140,000. 00 and making the amount of the loan max out at 40,000. 00. The 15,000. 00 loan that we looked at above, on a 10 year home equity loan would have payments of 178. 00 every month.
With debt consolidation you will pay less but usually for a longer period of time. If you are in desperate need of lower payments in order to survive, this can be a good deal and save your credit.
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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