Options For Debt Consolidation
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If you are a homeowner and are carrying large credit card or other unsecured debt balances you may want to consider a debt consolidation refinance. Not only could you save money every month with debt consolidation but you also gain the advantage of tax deductible interest. Today you have many different options when you consolidate your debt with a mortgage refinance.One should explore the reasons why one will go through debt consolidation. Freeing up cashflow to make ends meet is an excellent reason. Freeing up cashflow to go purchase more doodads is not such a good reason. Using the additional cashflow to increase your savings or investments is another excellent reason for debt consolidation. Once you have determined why you are embarking on debt consolidation, the options available to you will become clearer.
One of the most desired options for debt consolidation refinancing is the 30 year fixed rate mortgage, however most borrowers believe that 30 year fixed rate mortgages may be too expensive for them to consider as one of their options for debt consolidation. While this has been historically true, the gap between 30 year fixed rate mortgages and adjustable rate mortgage, or ARMs, is near a historic low at the time of this writing, making them less expensive than ever when compared to ARM loans. 30 year fixed rate mortgages are now also available with flexible payment options, giving borrower one less reason to select and ARM loan, and making the 30 year fixed one of the best options for debt consolidation
Another common option of consolidating debt is to obtain a second mortgage or a home equity line of credit, also known as a HELOC (pronounced He-lock). These 2 options are very comparable to each other, they both offer tax benefits and they both can provide lower interest rates along with one low monthly payment versus having a lot of different debt at higher interest rates. HELOCs and 2nd mortgages differ mainly in that with a second mortgage you get one lump sump of the entire amount of the loan and you pay it back on a timely schedule each month. With the HELOC, you take the money as you need it, you only pay for what you use and you make monthly payments only when there is a balance. Consult your mortgage professional to find out which option is best for you.
You can also "cash out" your equity to pay off your high-interest debt.