Home Loans and Mortgages – Time to Consolidate Loans

Home equity loans and lines of credit are useful tools for homeowners. They allow the homeowner to borrow against the value of his or her home for all kinds of purposes – home improvement, debt consolidation, vacations, and more. The loans, backed by the value of the house itself, come with attractive interest rates and the added bonus of tax deductible interest. That interest, however, is often variable, adjusting up and down with changes in market conditions. At the moment, conditions are such that interest rates for adjustable rate loans are increasing while rates for fixed-rate loans are still fairly stable. This is probably a good time for homeowners with variable rate equity loans to consider consolidating their primary mortgage and home equity loan into a single entity.

The ideal candidate for such a consolidation would be a homeowner who has a variable rate home equity loan, rather than a line of credit or an equity loan at a fixed rate. A line of credit is sort of a revolving loan, with an amount that may be drawn, as needed, time and again, much like a credit card loan. A home equity loan would represent a fixed amount of money borrowed for a specific length of time. To consolidate a home equity loan and a primary mortgage, the home would have to be refinanced with a new mortgage issued for the combined amounts of both loans. There are costs associated with this, so homeowners should consider the following:

Refinancing costs – It may cost several thousand dollars to combine two loans into one. A home appraisal will be required, along with paperwork fees, filing fees, and possible points paid at closing. A homeowner should make sure that he or she will remain in the home long enough to offset the additional costs of refinancing, otherwise the savings of consolidation are lost.
Interest rate on the primary mortgage – If you have financed or refinanced your home during the last three years, your primary mortgage rate may already be lower than the rate you could get today. You don’t want to raise your overall interest rate just to consolidate the smaller amount of money from a home equity loan.
The amount of money owed on the home equity loan – The larger the amount of money owed on the equity loan, the greater the benefit of consolidation. You wouldn’t want to refinance your home over an equity loan balance of $1000, but you might want to do so if the balance is $50,000.

Personal Loans Can Finance Debt Consolidation

Debt consolidation with a personal loan can provide consumers an affordable method to pay off multiple small debts. Prior to pursuing a personal loan for debt consolidation, consumers need to learn the basics about this type of loan.

Debt consolidation involves paying off multiple high-interest debts with one low-interest debt, such as a personal loan. Consumers benefit with debt consolidation by paying a lower interest rate and dealing with only one creditor – the loan lender.

Several financial institutions, such as commercial banks and credit unions, offer personal loans for debt consolidation. Once borrowers obtain the loan, they use the money and pay off multiple high-interest debts. With this method of debt consolidation, consumers can efficiently manage their budget with only one lender instead of multiple creditors.

Lenders arrange personal loans as installment loans, and borrowers repay the principal and interest in equal monthly payments, or installments. The closed-end credit features a fixed interest rate and payment, along with an assigned due date. Using this type of loan for debt consolidation offers consumers a set period to eliminate debt.

When borrowing a personal loan for debt consolidation, consumers need to ensure they receive a lower interest rate than the interest they pay on existing credit. Consumers should borrow only the amount need to pay off debts.

Debt consolidation with a personal loan can help consumers become debt free. By dealing with only one creditor and paying fixed interest rates and monthly payments, consumers create a more manageable budget with personal loans.

Examining Differences Between Home Equity Loans And A Line Of Credit

As of lately, obtaining cash from one’s home has never been simpler for homeowners. With the low interest rates over the last few years, everyone that wanted to refinance has done so leaving the lending market semi- stagnant.

At this point, lenders are anxious to loan to anyone that barely meets their criteria. Knowing what type of loan that suits your situation best is very important before you feed yourself to the “loan lions”!

There has been a recent flood of companies offering home loans and lines of credit. To make Home repairs or put on additions, more and more Americans are looking toward lines of home equity credit rather than a traditional home equity loan(also known as a second mortgage).

Americans need to consider multiple things prior to utilizing either of the above two financing products.

Lines of credit usually are appropriate for people who need a lower beginning rate and availability to money at unpredictable times. A home equity line is also good if you are unsure what the project will cost.

Many homeowners are doing the contracting themselves. In this case a home line of credit is best as you simply pay for the project in an ongoing basis until completion, thus borrowing only what is needed and not coming up short due to unforeseen overages.

Home loans are more appropriate for those who need specific amounts of cash with payment stability. The biggest difference between these loans is the method in which you receive your money. Using a home equity loan, you receive the whole amount of money at closing. Using a home equity line of credit, one can borrow cash when needed, up to a pre-determined amount of credit.

See the following comparison for additional details.

(a) Loan Funds Availability: Home Equity Line of Credit – Borrow money when needed. You can borrow up to the stated credit limit. When you pay down principal it is added back onto the balance of your credit line to be used later.

Home Equity Loan – Receive entire loan amount at closing in a lump sum. You can not reuse this loan amount after principal is paid back.

(b) Interest Rate: Home Equity Line of Credit – Variable rate. Beyond the first monthly billing cycle, your interest rate is determined monthly, usually determined by the prime rate, when posted in The Wall Street Journal, in addition to a operational margin.

Home Equity Loan – Fixed rate, Interest and payment stays the same.

(c) Payment Structure: – Monthly payments vary with interest rate and amount of principal which has been borrowed. These loans have a draw period, usually of 5 or 10 years, during this time you have the option to pay only the interest, however beyond the draw period you must repay the principal and interest to pay down the loan within the remaining years.

H. E.L.O.C. – Interest and principal payment stay the same during the loan term.

(d) Loan Advances: Home Equity Line of Credit – Simply write a bank draft for $250.00 or more.

Home Loan – Entire amount is received at closing.

(e) Rate Advantages: Home Line of Credit – Less interest rates than your unsecured credit lines such as credit cards.

Home Loan – Lower payment options are available due to a variety of terms.

(f) Tax Advantages(Ask your tax advisor): The interest on both types of loans may be 100% deductible!

(g) Other Advantages: – Appropriate emergency fund for unexpected emergencies or expenses. Can incorporate multiple projects at one time.

Home Loan – Single use, less temptation to borrow more by just writing a check. Stable loan with a fixed rate, fixed payment and easier to budget for.