Choosing Home Loan Consolidation

Home loan consolidation always seems to be an easy answer for debt overload, but is it really? After all, you are putting the future of your home out there at risk in order to get rid of those high interest bills. On the other hand, you now put your home at risk if you should miss making your payments even if you are making the payments on your primary mortgage. Is it a wise decision? In most cases, it probably isn't a wise decision, but there may be circumstances that justify home loan consolidation.

Protect your credit

When you find yourself in a bind financially, the first thing that comes to mind is home loan consolidation. Before you choose this option, you want to think carefully at what you are putting at risk and determine if that is really the best solution. In most cases, it is better to either work with the creditor on a plan to lower the payments or work with a debt management counsellor, especially if the debt has reached the point where your credit is affected. Once there are marks on your credit, the impact of paying off the debts with a home loan consolidation is lessened.
If, however, you have not yet missed any payments but are simply struggling to pay all your debt, a home loan consolidation may be justified in preventing adverse remarks on your credit report. Even with that in mind, you have to be ware of the fact that a home loan consolidation means you essentially have two different payments for your mortgage, and that failure to pay either one of them will result in foreclosure.

Consolidation or debt management

The decision to choose home loan consolidation or debt management is a difficult one and should be based on your individual needs. If your bills are already behind, you actually stand to gain more with debt management since the potential for a reduction in interest rate is quite probable. If you consolidate using your home as collateral, you will not remove the negative rating on your credit even though you pay the debt in full, and you would be paying interest on it as well. Because of the potential risk, unless you still have your credit in tact or your creditors refuse to accept a program of debt management, you should avoid a home loan consolidation. Besides the fact that you put your home at risk for foreclosure is the fact that you tie up the equity in your home, and if you need it for home-related repairs or remodelling, the funds are not available. Always save the equity in your home for things that are a direct part of it except in rare cases.
Is it worth the risk to save on payments?

The question you must ask yourself before entering into a contract for home loan consolidation is if putting your home up as collateral is worth the potential risk. It’s a risk not only of foreclosure if you should default on either mortgage, but also a risk if you should need the equity in your home for major repairs in the near future. Give it careful consideration before you choose that route, and make sure that you understand the potential risks and that there is no alternative method.


Author: John Mussi