subject: No more mortgage or other debt payments with a consolidation strategy [print this page] No more mortgage or other debt payments with a consolidation strategy
Having no more mortgage or other debt payments.
That would make life a lot easier wouldn't it.It's one of the top financial goals eveyone has or should have. Who doesn't want to retire with no more mortgage payments? One strategy to help you get there is using a debt consolidation mortgage loan.We'll talk further about that so you can understand not just the benefits to that, but the negatives too.
If you are a homeowner and can qualify for a home loan to consolidate yourpersonal debt, you may be able to get a loan for the purpose of paying off your credit cards, automobile loans, and other debts. You need to realize that this approach doesn't actually pay off the debts in the loan. You are really just movingthe existing debts to the mortgage consolidation loan and there is both good and bad involved in that. Although the strategy involves getting a new mortgage, the goal is to pay off your debts and have no more mortgage in a fraction of the normal time using additional cash you have freed up.
You could get a new first mortgage consolidating the debts in the new loan. Or you can do it as a new second mortgage which does not impact the terms on the current primary mortgage.
Positives for a mortgage consolidation loan are as follows:
1. An improvement in your cash flow right away. You should end up with an improvement in your overall debt payment thanks to a new mortgage payment that is smaller than the old total debt. You could see a significant difference between payments on the new loan versus the old loan plus the old debt payments allowing you to save possibly hundreds of dollars a month or even more. You will find that you couldsee even larger savings if you have significant amounts of debt.
2. Improvement in overall interest rate paid on the personal debt. Rates for a home mortgage are extremely low today. Credit card rates typically run much higher than mortgage rates and it is also a more expensive personal debt using compounded interest. Mortgages are calculated at simple interest which helps keep the debt from getting out of control as credit card debt often does.
3. Your tax write off or liability is improved. Your mortgage will most often bring you a generous tax write off. You will most likely not be able to write off any of your credit card debt interest. Your tax professional will be able to affirm your eligibility for tax deductions. You might talk to your tax professional about changing your deductions to bring home additional money to put towards your debt if they agree that it would help and you are still meeting your tax obligation. One other thing to know is that eventually your tax write off will die out before you have no more mortgage payments due to the way the amortization works.
4. The new mortgage loan should allow you to pay out less in total every month and reduce the number of debts you are paying on and tracking every month. You paid off debts in the loan (transferred the personal debt to the mortgage) so you are sending out less money and also fewer bill payments. There is less to track alowing you to focus more on what is important.
5. You would be wise to use the additional cash you now have to attack your personal debt and pay if down faster. You could not only pay down any other personal debt you have but it can then help you start paying down the mortgage and to rebuild your equity faster. Use the surplus cash to get that new 30 year mortgage consolidation loan paid off in 1/2 to 1/3 the time. Take a minute and think about what that would mean to you. You could be debt free with no more mortgage payments and a very bright future.
Now let's lookat potential negative effects of the mortgage loan:
1. You are taking out a new mortgage loan that is larger than the one you had before. You have to make sure the new payment is affordable and that you can easilyafford it. With a lower overall personal debt payment due to the new consolidation loan you should find some financial relief. The new loan should make sense financially or you need to look for another option. The new loan is secured by your house which you don't want to put at risk so make sure you are choosing the appropriate path to your goals. One of which is to have no more mortgage in 1/2 to 1/3 the normal time.
2. Total costs for the new mortgage loan you are taking out. Make sure you know how much the costs are for your new loan. High fees could mean the payment might not make sense so double check everything before you move forward. If you aren't getting obvious benefit from it, don't sign until you have the deal that works for your budget.
3. Consolidating the debts in the mortgage can increase your total debt load at the start. You might find that some loans don't lower your payment enough to make it worth it. The new loan is not the better option for you if you are not able to gain enough cash flow to accelerate the pay down of your debts.
What you need to know:
1. Mortgage Consolidation loans have not historically made a huge contribution to improving the future of the home owner.There were home owners getting consolidation loans which freed up their credit cards and then a year or two later they had filled up their credit cards all over again. This comes from a lack of financial discipline. How can you expext to get ahead and stay ahead if you continue to build up debt? You can't. Moving your personal debt around has given you additional cash flow to use to your benefit. Debt has a way of sneaking back up on you when you least expect it and can easily wipe out your cash flow improvement if you aren't disciplined. You'll never achieve your goal of having no more mortgage or other debt if you don't stop adding in debt.
2. Your mortgage guy's commission could be tied to the interest rate on your loan. The higher your rate the more they could make unless they are charging you just an origination fee. In some cases they get both an origination fee plus commission from the lender. It is very important you read the paperwork in the initial disclosures and again before signing so you know what you are paying. Don't be surprised if you end up haggling over rate as it could be directly affecting the amount your mortgage company will make on the loan. Your future is most important here so if you can't get a deal that works you need to say no more mortgage deal for you and move on to someone else.
3. Many people go for the loan option with the most cash out to pay off debt and give them some cash too. What sounds good initially could hurt you in the long run as you are paying interest on each and every dollar you are pulling out. You really don't want any of that money going towards anything else but what you really need it for to make your strategy work.
4. Be aware of pre-payment penalties on your current loan. You would not be the firstperson to end up losing several thousand dollars in equity due to a penalty on your current mortgage loan. You should go through through the old documents on your mortgage. You would be surprised at the high percentage of people that don't know they have an early pay off fee.
Make sure you are working with someone on your mortgage consolidation loan that has your absolute best interests at heart. Getting recommendations from friends and family is a good way to start off. Check out who you want to work with at the BBB website to see what their rating looks like.
You have some good information now so consider the following too.
1. Getting a mortgage loan to consolidate debt does not really pay anything off. Your mortgage just swallowed up the debts making it even larger. The risk of losing your home has increased as you have reduced the amount of equity available should you become unemployed. Using the cash flow improvement wisely can make all the difference in succeeding with your fiancial goals. It could bea very bad move if you are not disciplined and run the chance of running your personal debt back up once your credit cards are freed up. That is not the way to get to the goal of having no more mortgage payments.
2. You will have a mortgage payment that is higher than the oldone and you have to be able to pay it on time every month. Your new mortgage consolidation loan payment will be less than the previous total debt payment you had.
3. If your strategy is only for 3 years or less you mightnot see obvious gains if your new consolidation loan has high fees involved. If there is a chance of moving in the next few years you should compare the cash flow gains to the costs and determine if it's worth it in the short term.
4. If you are planning to sell in the next few years then look at adjustable rate mortgages without a pre-payment penalty as they could save you extra money in the short term. If you plan on staying where you are long term, use a fixed loan for safety and to lock in your cash flow savings.
5. You might be able to find a home equity line where you live. There is a danger to having an equity line. If you are not disciplined having the ability to pull equity out of your home is a bad idea. Unfortunately, most home owners will eat into their equity over time and consume it.
6. Like many others, you might have experienced the "refinance to pay off debt" cycle in the past and found yourself no better off for it financially. If so, you might want to look for a new strategy that incorporates a system that will help you keep moving forward. You're working towards becoming debt free and retiring with no more mortgage or other debt payments. With the right strategy you could achieve that and more.
Whatever your financial goal, you should be leveraging the most important tool you have.
That tool is using a personal budget.
When you learn to budget well and stick to your budget you will experience significant change in your finances and start making headway towards controlling your personal debt. You will be able to plan better and not have to rely on credit cards to bail yourself out of unexpected expenses. Get on track to having no personal debt and no more mortgage payments.
