Debt runs very high in our country today and many Americans are feeling the pinch. The good news is, though, that it is a problem that has a few possible solutions. As with any problem, the main thing is how to solve it. One quick solution may be to consolidate your debts with a home equity loan, or, by getting a 2nd mortgage on your home. This could be just the way you need to go. While this could be the solution you need, there are some things you need to watch out for - as well as some concerns about going this route, and this article will cover some of them for you. Watch Out For Increased Interest Rates Before ever thinking about a second mortgage, you may want to see if you can simply refinance your existing mortgage at a lower rate of interest. If mortgage refinancing is not available to you, then getting a second mortgage could be a great thing - if the new interest rate is lower than the rate on the existing debt - possibly on your credit cards. If your credit card rate is around 10 or 11%, then this is probably already lower than the rate you will get for the new loan. Of course, credit card rates differ, so it may pay for you to put only the higher rated cards onto the new loan. Carefully Calculate The Loan Features Some of the numbers that you may be presented with might look good on paper, but be sure to ask those pertinent questions. In other words, just because your monthly payment may be lower, this does not at all mean that a particular home equity loan is what you want. A lower payment could also mean stretching out your payments for a much longer period, which will increase the amount of money that you actually owe. Mortgage-expo.com, an online company, says that there are other things to consider, too: "2nd mortgage rates will vary based on your individual situation and credit status therefore take care to retain a good credit score. Apart from checking out rates you should also enquire about closing costs, mortgage points and all other pertaining facts."1 Be sure to look into the features of the mortgage, and dont jump to placing your signature on the dotted line just because it sounds good. Remember that loan originator companies are also salesmen, and while they must be entitled to make a living, they dont necessarily have to get rich off of your haste. Consider The Types of Mortgages Available There are basically just two types of mortgages: The Fixed Mortgage Rate The fixed rate mortgage gives you a greater stability, simply because it offers you a fixed payment. In other words, you always know exactly what your payment will be - for the life of the loan. Any changes in the economy will not affect it. One word of caution, though, it may not be assumable. The Adjustable Rate Mortgages (ARM) On the other hand, the adjustable rate mortgage, while it will give you a steady rate during the initial fixed rate portion of the loan (usually in 1, 3, 5, and 7 year periods), it may or may not become lower after that. It depends entirely on the economy. This type of loan could work to your benefit if you are intending to pay it off in the fixed rate time period of the loan. However, You will want to make sure that you can pay it off early without any penalty. Also, some may not be convertible to a fixed-rate mortgage. Look For Ways To Reinvest Any Savings In order for this method of debt consolidation to really be beneficial to you, you need to try and put as much as possible each month toward the payment of the debt. Lower mortgage rates do mean a smaller payment, and more money in your pocket. Instead of taking the extra money and putting it toward new purchases, you must take a good-sized piece of it and apply it toward paying off the mortgage - on a monthly basis. The best way to really enjoy financial freedom involves both the liberty to have all debts paid (or, at least comfortably sustainable), and knowing how to say No to new purchases bought on mere impulse. That includes, of course, the newest and the latest - of anything! Remember, too, that anything bought on credit means that you are paying more (sometimes much more) than you would if you paid cash for the same thing. Remember this when you buy things on Sale with a credit card! Unless you can pay it off when your next bill comes due, you probably are not getting any real savings! Tips On Getting The Best Deals On A Home Equity Loan Here are a couple of ways to get the best arrangement for a home equity loan: Learn All You Can About Your Options - Do Your Homework One possible option may be to simply get a second job - for a short term. Another may be to get a better paying job. Being able to pay off those debts quickly, instead of with a lot of unnecessary interest is always the better way to go. Seek The Lowest Interest Rate Possible With the mortgage calculators that are available online, you can really do some educated shopping around for the best price. A single percent in interest could mean much money saved when spread over a span of several years. Keep The Loan Time Limit To The Least Possible Remember that the goal here is to pay off the debt - not to find new ways to get deeper in debt. While obtaining your 2nd mortgage, dont be tempted to stretch it out as long as possible, but keep it reasonably short. Getting a home equity loan could be just the thing that you need to bring some relief to a difficult financial situation when you need to get debt consolidation. Remember, though, to take some wise steps to prevent that need from happening again - seek for the long-lasting debt relief. |
