subject: What Is A Debt Consolidation Home Equity Loan? [print this page] A debt consolidation home equity loan is a combination of two type of loans; a debt consolidation loan and a home equity loan. When used together they can be a powerful tool to help you free up some monthly cash. If you want to roll your auto loans, credit cards, and non secured debt together and get a lower payment, then you might be in the market for one of these loans.
Debt consolidation loans are good to relieve financial pressure of monthly expenses and can help you out of a crunch. If you have a number of loans that are for signature loan, auto loans, or credit card debt and the total debt is $13,000. The payment on this would be $450 each month. With one of the consolidation loans you can stretch out the payment for 6 years and the payment would then be $232 each month. This is an excellent way to get your payment lowered.
The equity loan on the other hand is a loan secured by the equity your home has built up. With enough equity in your home, you can be approved for one of these loans quite easily. This is because the collateral will be your home. Equity works like this, if the home has a value of $200,000 and you owe $100,000, the equity is $100,000.
The catch is that most lenders will only allow you to borrow 70% of the house value. That means that in the eyes of the bank, your house is only worth a value of $140,000. In this instance, you will only qualify for a loan of $40,000. The length of the loan will be somewhere between 5 and 20 years. The same $15,000 loan would have a length of payment of 10 years and a payment of $142 each month. The equity line of credit will give you a longer repayment period, thus, lower payments.
The consolidation loan will give you lower monthly payments at the cost of longer repayment period. This is a wonderful loan if you are in a real pinch to get a little more free cash each month.
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 at all. In order to get the best interest rate and other terms possible, you have got to see the financial trouble coming and decide on the loan before you actually need it.
Even with the good points of the consolidation loan, the one thing you must keep in mind is that you will tie up a significant portion of your home's equity for a long period of time. If house values fall, you may end up in a situation where you have no equity left or at the worst, owe more than your house is actually worth.
You should be very cautious about this type of lending and be very careful not to get yourself in a jam that you cannot get out of. It would be good sense to speak with a loan professional to help in your final decision.
