Debt Consolidation Mortgage

The home is the center point of the American family, not just because the home is where we eat lunch and dinner, pay our bills, or rest our heads at night, but because it’s at the center of our personal finances. Today, loans can be had in any shape and size, but the lowest interest loans are always those that are associated with tangible property—real estate. We’ll show you how to get a debt consolidation mortgage to reduce your monthly payments, pay down debt, and remove the danger of compounding debts from your personal finances.

Debt Consolidation Mortgages
A debt consolidation mortgage is one which you take out on your existing home in order to repay current debts. By using debt consolidation mortgages, the average American can save tens of thousands of dollars in interest by creating a single monthly payment with a lower interest rate.

A debt consolidation mortgage often comes in the form of a second mortgage on your home, or a mortgage which is taken out against the current equity ownership in your property. For example, if you have a home worth $100,000, and you owe $50,000 on a current mortgage, then you have $50,000 in equity against your home. Most debt consolidation mortgages will allow you to borrow up to 80% against your home’s equity in relationship to the current value. Thus, on a $100,000 home you can borrow up to $80,000. However, seeing as you have $50,000 in mortgage debt, you can borrow the difference between $80,000 and $50,000 through a second mortgage, or $30,000.

A second mortgage on your home will typically come with excellent repayment terms. A person who has existing consumer debts on cars, credit cards, or other open lines of credit might pay up to 20% per year in annual interest. However, a second mortgage is often written with rates of 3-6%, a savings of 14%-17% per year.

Why You Should Use Debt Consolidation Mortgages
Above all else, the best reason to use a debt consolidation mortgage is to finally put an end to growing consumer debts. By borrowing inexpensively, you can turn $1,000 of credit card payments into $200-$300 of second mortgage payments, saving you money and relieving your cash flow problems.

But best of all, second mortgage interest is tax-deductible, thus meaning that any amount you pay in interest on your mortgage can be deducted from your income when you itemize your taxes. If, for example, you have income in the 25% tax bracket and already meet the standard deduction amount, then any and all of your home mortgage interest can be deducted from your taxes as a direct savings. A 6% mortgage rate would then fall to an effective rate of 4.5% per year, since the 1.5% is made up for in your tax savings.

Most interest is not tax deductible. This includes credit cards, car loans, or any debt which is not a mortgage on a piece of real estate, or interest paid to a student loan company. It used to be that consumers could deduct all interest paid, but now only student loans and mortgages offer this excellent tax savings.

Consolidating your debts
There are a few ways you can strategize to pay off your debts. You could:

Extend payoff dates – Extending your payoff date will reduce your monthly payments, but reduce the total amount paid in interest over time, assuming an equal interest rate. IF you want to extend your payoff dates, then you can do so with most every existing debt and a new debt consolidation mortgage.

Reduce your rates – Reducing your interest rates is the best way to put a dent in your growing debt. Moving from a non-tax deductible 20% interest rate on a credit card to a tax-deductible 6% rate on a debt consolidation mortgage will slice an effective 15.5% off your interest each year, saving you time to pay off the debt, and money in interest and finance charges.

Match your current payment – A debt consolidation mortgage which matches the current monthly payment on your existing debts is the best way to reduce your total amount spent in interest. By paying the same amount each month on a debt consolidation loan as you pay on your existing debts, you’ll reduce the amount of time to pay off a debt, and also reduce the interest rates. A 10-year personal loan for $25,000 at a 12% rate, for example, would cost you $358 in monthly payments. A 7-year debt consolidation mortgage at a 5% rate would cost $359, or $1 more each month, but pay off the loan 3 years faster, thus saving you $12,888 over the life of the loan! That’s almost a brand new car—or a very nice used car.