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
Interest from the day of closing to the first day of the following month. To simplify the task of loan administration, the accounting for all home loans begins as if the loan was closed ...
A lender offering loans on the Internet who provides mortgage shoppers with the information they need to make an informed decision before applying for a mortgage and guarantees them ...
Limit on the size of payment change on an adjustable rate mortgage. ...
Adjustable rate mortgages on which the interest rate is mechanically determined based on the value of an interest rate index. Indexed ARMs are distinguished from Discretionary ARMs, in that ...
A government-owned or -affiliated lender that makes home loans directly to consumers. With minor exceptions, government in the U.S. has never loaned directly to consumers, but housing banks ...
A second mortgage on a property that is not paid off when the first mortgage is refinanced. The second mortgage lender must allow subordination of the second to the new first mortgage. ...
An option attached to a mortgage, which allows the borrower to pay only the interest for some period. A mortgage is 'interest only' if the monthly mortgage payment does not include any ...
The party who services a loan, who may or may not be the lender who originated it. ...
The period between payment changes on an ARM, which may or may not be the same as the interest rate adjustment period. ...
Have a question or comment?
We're here to help.