Loan Consolidation Information for Homeowners

Owning your own home can mean much loan consolidation information.  Debt consolidation simply means taking out one single loan which has enough money to pay off two or more other, smaller loans all at once.  If you have enough equity in your home, you have increased funding options for consolidating other loans.  

Using Your Home To Fund Your Loan

Some homeowners take out a loan against their home’s equity, which they then use to consolidate other loans.  There are some advantages to using a home equity loan instead of seeking a traditional personal loan from a bank – most standard home equity loans have a fixed interest rate, which means that your payment will not be altered should there be an economic shift  for the worst.  Also, the interest earned on your home equity loans is usually tax-deductible. 

Another option is a home equity line of credit, which is similar to a credit card.  Rather than borrowing a lump sum, borrowers who receive a home equity line of credit can make as many withdrawls on the credit as they like, provided there is credit available.  Borrowers still have to make monthly payments, but have the option of obtaining funds from their line of credit again if they need more money on a future date. 

Other homeowners may wish to simply refinance their existing mortgage for a larger amount.  The homeowner will take out a loan for more than their current loan balance and will apply the excess money toward bill consolidation.  These homeowners would then be able to make one single payment each month to cover all of their debt. 

Potential Problems With Using Your Home Equity

While there are advantages to using a home loan for your loan consolidation, there are are also drawbacks to consider.  For instance, you should never borrow more than the value of your home’s equity; if you have an outstanding equity loan worth more than the value of your equity, you will be unable to sell your home until the equity loan is paid off.  Even if you take out a more modest equity loan, if you do move, you will still have to pay off the equity loan when you move.  If the cash you get from selling your home isn’t enough to pay off both these loans, you will be responsible for making up the difference. 

The biggest disadvantage to using your home’s equity for loan consolidation is that your home itself is the collateral for the loan – so if you default on your loan you run the risk of losing your home, even if you are staying current with your loan payments.  Because of this, you should apply for the smallest possible amount you can, and be sure you can pay it off as quickly as possible.

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