Real Estate Blog

Real Estate Can Be Helpful To Make Unmanageable Debt Manageable

One easy way to make unmanageable debts manageable is to consolidate them which you can effectively do by turning them into a conventional mortgage. You can use your home equity if you are an owner of a house and with the home equity loan or line of credit you can easily consolidate your debt into one easy monthly payment. If you have high interest debts like credit card debts or even other loans that you may find difficult to manage now, this is an easy way to manage your finances.

Debt consolidation is the process of combining your debts into a debt consolidation mortgage which is also known as home equity loan or line of credit. These debt consolidation mortgages are usually a long term loan that will give you more than enough funds that you need to pay off your multiple debts at the same time. Once you pay off the other debts you will now have only one loan to repay rather than several debts making your finance management and debt repayment an easy and manageable affair.

When you want to consolidate your debt this way there are lots of benefits that you can enjoy such as:

  • You do not have to keep track of multiple bills and its payments
  • It will in turn eliminate the chances of missing out any payments that will fetch penalties and added interests thereby raising your outstanding due
  • You can ask the lender for a loan amount that is equivalent to or more than the total amount you owe if conditions are favorable and
  • Paying all debts at a tie will help you to streamline your finances in a better and more effective manner.

However, if you want to take on such a loan to manage your debt, there are a few things you should do and follow a few specific steps. These are:

  • Start by looking for lower interest rates for the loan you wish to take. When you know how much the loan will cost you in the end, you will be better off.
  • Read the terms and conditions of the loan that should include the interest rates, length of the term, additional fees and other causes carefully before you commit to a specific loan.
  • Always make a proper budget beforehand. This will help you to choose an affordable loan that you will be able to repay every month knowing how much money you can set aside each month for repayment. It will also help you to manage your finance, set your financial goals, and set limits on your impulsive spending. You can use a budget calculator for this.
  • Make sure that you do now work alone. Always consult with a certified financial planner or a credit counselor. They will help you in all respects including developing a budget, designing a debt repayment plan and even talk to your local bank branch if required.
  • Make sure that you pay more than the monthly minimum as that will help you to pay off your debt sooner.
  • Last and least, you must keep an eye on your credit and use it wisely. This is important because it is your credit that will determine whether or not you will qualify for a mortgage.

Your credit is the most significant tool whether you wish to take out a loan from a traditional lender or look for any relief and grants from A bad rating will lower your chance of getting a loan approval irrespective of the source. Therefore, pay your bills on time and never miss a payment to improve your credit rating.

Benefits to consider mortgage

Since there are so many options available to repay your debt and even when you want to consolidate your debt in particular. You may think why on earth you would risk your property after all. Well, as a matter of fact when you use your real estate property into consolidating debts, you will enjoy a lot of benefits.

  • If you refinance your existing mortgage into a consolidation loan it will not only combine your multiple debts into one single payment but in fact you will be paying only the interest rather than the principal.
  • Moreover, when you refinance, you will usually get up to a maximum of 80% of the appraised value of your home after deducting the remaining mortgage. This is will in any ways higher than the amounts that you may get in an unsecured personal loan which is another form of a debt consolidation loan.
  • The rate of interest rates on the new debt consolidation mortgage may be significantly different from the existing mortgage because when you change your mortgage it will automatically change the terms of your original agreement.
  • Typically, these debt consolidation mortgages come with a well-defined and structured payment plan. It will also contain an assured pay-off date.

However, payment schedules may vary and can be weekly, biweekly, semi-monthly or monthly as agreed during the negotiation. According to the new terms some fees for refinancing such as title search, appraisals, legal fees and title insurance may also apply. Apart from that there may be a prepayment charge included in the agreement as well depending on the mortgage option you choose.

Therefore, it is essential that you do your homework and research well about the options and terms before committing to a debt consolidation mortgage. This will help you to find the right mortgage for you after knowing the benefits and drawbacks.

Reasons to consider mortgage

You should consolidate debt into a home equity loan because your home equity increases as you pay off and as the value of your home goes up. The interest rates on these loans are usually much lower compared to any other loans. You will also get much higher credit limit that will help you especially in paying off your higher interest loans.

Moreover, on a home equity line of credit or HELOC, you pay interest only on the amount you use and not on your total credit limit which is why you should use your credit wisely.

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