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HOME LOAN FOR DEBT CONSOLIDATION
What is a home loan?
A Home loan or a mortgage is an agreement between the borrower and the lender, wherein the borrower purchases a property by keeping the same property as the security for the borrowed amount.
Home loan for debt consolidation
Before discussing about home loan for debt consolidation, you should know what debt consolidation actually means. Debt consolidation is a process by which you can consolidate all your monthly debt payments into a single payment every month. Moreover, the single monthly payment is much lower than the sum total of all your loan payments.
Home loan for debt consolidation can be an attractive idea for those who are suffering from debt related issues. You can take out a home equity loan by pledging your home equity. With the help of a home equity loan, you can combine and replace all your existing loans with a single one. Moreover, the interest rate on a home equity loan is much lower as compared to a personal loan. So, you can pay off your debts as well as save a significant amount of your monthly income.
However, a home equity debt consolidation loan has certain disadvantages, too. You may lose your home if you are not able to pay back the loan within the stipulated time.
It is relatively easier to qualify for a home equity debt consolidation loan with a bad credit record. However, you need to have sufficient equity in your home to take out a home equity loan. Before taking out the loan, it is advisable that you calculate how much you’ll have to pay for the loan every month. This will help you to assess whether or not you’ll be able to afford the required monthly payments.
Types of debt consolidation loans
There are 2 types of consolidation loans that you can take out from a financial institution. They are – secured debt consolidation loan and unsecured debt consolidation loan.
Secured Debt Consolidation Loan: This means consolidating debt with a loan which is secured against a precious property, having equal or more value. The asset serves as the collateral for the loan.
Unsecured Debt Consolidation Loan: This kind of loan does not need any asset as security. However, the borrower needs to have a good credit record in order to take out an unsecured debt consolidation loan.