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3 Options for Home Loan Debt Consolidation


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TERMINOLOGY

Home loan debt consolidation may be able to provide you with the tools you need to get control of your debt. Debt is a problem that almost everyone in today's society has to deal with. While it may take some time to get rid of the debt, there are ways to help you manage it. A debt consolidation loan is one way that you can achieve this. Here are a few different options for home loan debt consolidation.

1. Refinance
One way to accomplish debt consolidation with the help of your home is through a home refinance. If you have paid on your mortgage for a number of years, you should have some equity built up. The balance of your loan has gone down but the value of your home has gone up. Therefore, when you refinance, there should be a substantial amount of money there to use. This money can be used to consolidate your outstanding debt. When you use this money to pay off your debt, you are undoubtedly trading a high interest rate for a low one. In addition to this, your payment will be much lower overall compared to what you are used to. Your mortgage payment will be about the same that you are used to, but you will eliminate the other debt payments.

2. Home Equity Loan
Besides a refinance, there are other ways to use your home equity. With a home equity loan, you will keep your existing mortgage the same. However, you will get a second loan that is borrowing against your equity alone. A home equity loan is usually for a shorter time period than a traditional mortgage. If you have several credit cards, a home equity loan will definitely allow you to lower the interest amount that you are paying. Instead of paying three or four different credit cards at a high interest rate, you can make one low payment at a lower interest rate. Another huge advantage of using a home equity loan is the tax advantage that it provides. You can fully deduct the amount of interest that you pay toward the home equity loan. Therefore, in addition to saving you money on the front end in the form of a cheaper payment, it will save you money at the end of the year on your taxes, as well.

3. HELOC
A home equity line of credit (HELOC) can go a long ways toward helping you get out of debt. This method is much like the home equity loan. However, instead of a fixed amount of the loan and a fixed payment, you can borrow what you want. If you need money for something, you just write a check out of the line of credit. You can do this whenever you need the money and then repay it as you can. The interest will accumulate only on what you have borrowed. This method will allow you to consolidate your debt by leveraging your home equity.