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What kind of loan is a debt consolidation home equity loan? This is a loan that is a cross between two different loan programs that have been around for quite some time. The home equity loan borrows against the equity you have in your home. The debt consolidation loan rolls all your unsecured debt into one lower payment. When you are in need of a lower monthly payment and do not mind a longer payment term, this loan could be the one you need to get out of the spot you are in.
by EddieLamb
What kind of loan is a debt consolidation home equity loan? This is a loan that is a cross between two different loan programs that have been around for quite some time. The home equity loan borrows against the equity you have in your home. The debt consolidation loan rolls all your unsecured debt into one lower payment. When you are in need of a lower monthly payment and do not mind a longer payment term, this loan could be the one you need to get out of the spot you are in.
First, I would like to discuss the loan that we are talking about. A debt consolidation loan, by itself, works like this. You have 8 bills for credit cards, an auto loan, and 2 small signature loans at a small lending institution. The total balance is $14,500 in debt. Your current payment is $426. 00 every month. A debt consolidation loan will roll all these loans into one and stretch out the length of payment to 5 years. The new payment will be$246. 00 per month.
The second half of our hybrid loan is against your home equity. With enough equity in your home, this kind of loan can be quite easy to secure. A creditor will be much more likely to approve an equity loan as he uses the home as equity for the collateral. If you owe 100. 000. 00 on your home and it appraises at 200,000. 00, you have 100,000. 00 in equity.
The catch is that you can borrow only 70% of the house value. That means that in the eyes of the bank, your house is only worth a value of 140,000. 00. In this instance, you will only qualify for a loan of 40,000. 00. The length of the loan will be somewhere between 5 and 20 years. The same 15,000. 00 loan would have a length of payment of 10 years and a payment of 142. 00 each month. The equity line of credit will give you a longer repayment period, thus, lower payments.
You will usually pay less pr month on an consolidation loan but most of the time you will be paying for a longer period of time. If you are in great need to reduce your monthly outlay, this can be a great deal for you and save your credit rating too.
There is a common problem with this type of loan, as you may experience a little trouble in the qualification process. Some people that have been having problems for a few months will experience a ding in their credit history and that will cause a higher interest rate on the loan or in the worst case, cause them not to qualify for the loan. You have got to see the financial trouble coming and decide on the loan before you actually need it in order to get the best interest rate and other terms. S
A debt consolidation loan can be a good thing and save you much hardship and heartache. However, you must be aware that the debt consolidation loan that is using your home equity as collateral can continue to take a big chunk out of the equity for a long time. If home values fall, you could be in debt for more than your home is worth.
Talk to a financial loan professional before you make any decision like this and just use good common sense.
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