Debt Consolidation
Rolling short-term debt into a home mortgage loan, either at the time of home purchase or later. The Case for Consolidation: Borrowers consolidate in order to reduce their finance costs. Usually, the interest rate on the mortgage is below that on short-term debt, and mortgage interest is also tax-deductible. Borrowers also like the convenience of making fewer payments. The Case Against Consolidation: When borrowers consolidate, they convert unsecured debt into secured debt. That is the major reason the mortgage interest rate is usually lower. Borrowers who encounter financial distress and fail to pay their unsecured debts lose their good credit but they don't lose their home. By increasing the size of the claim against their home, they increase the risk of losing it. If consolidation causes the mortgage amount to exceed the property value, borrowers may also lose their mobility. Sale of the property requires that all mortgages be repaid, which means that the seller must come up with enough cash to cover the deficiency. Borrowers in this situation may also have to pass on opportunities for profitable refinance, since it is very difficult to refinance when debt exceeds value. Consolidation that reduces the borrowers total monthly payments while eliminating their short-term debt may encourage them to build up that debt all over again. This could result in so much debt they never get out from under.
Popular Mortgage Terms
The form that lists the settlement charges the borrower must pay at closing, which the lender is obliged to provide the borrower within three business days of receiving the loan application. ...
Loan applications that are withdrawn by borrowers, because they have found a better deal or for other reasons. ...
The initial interest rate on an ARM, when it is below the fully indexed rate. ...
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The monthly index is a ratio of monthly interest costs to total funds, expressed as a percentage. Annualized interest, the numerator, is calculated by multiplying the deposit balances at ...
A fee that some lenders charge to accept an application. It may or may not cover other costs such as a property appraisal or credit report, and it may or may not be refundable if the lender ...
A very large increase in the payment on an ARM that may surprise the borrower. The term is also used to refer to a large difference between the rent being paid by a first-time home buyer ...
Standards imposed by lenders as conditions for granting loans, including maximum ratios of housing expense and total expense to income, maximum loan amounts, maximum loan-to-value ...
The amount of the original loan remaining to be paid. It is equal to the loan amount less the sum of all prior payments of principal. ...
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