Consolidate Debts with Your Mortgage

Consolidate your debts with your mortgage through debt consolidation. Using a secured asset to finance debt consolidation can be an efficient way to pay off debt. Among the most popular methods of this debt-relief program are home equity loans and lines of credit, which carry favorable terms and low interest rates.

Equity debt is more appealing than other forms of credit because the interest is tax deductible. The money leveraged by the borrower's home provides a lower interest rate, compared to an unsecured loan. Consumers should consider their situations and learn about debt consolidation via home equity before risking their property.

There are two methods of equity debt: Lump-sum loans (similar to second mortgages and referred to as home equity loans) and home equity lines of credit (called HELOCs, which operate like credit cards). With either method, the amount a consumer can borrow is limited by the home's equity. Equity is calculated by taking the difference in the home's fair market value from the unpaid mortgage balance.

With a lump-sum equity loan, consumers borrow the entire amount of the loan. The borrower pays fixed monthly installments for the life of the loan. This type of loan is effective for debt consolidation and paying large bills.

Home equity lines of credit allow creditors to take cash from the loan as needed, typically by writing a check. How much the consumer uses determines the consumer's monthly payments as a percentage of the total principal. The main advantage of this type of loan is its flexibility, because consumers can borrow only the amount of money they need at a certain time.

Debt consolidation can provide homeowners an easy way to become debt free. But consumers should know all the facts before making a decision.

Author Bio: Allison Roberts is a graduate of the University of North Texas Department of Journalism. She has experience in agency and in freelance public relations. Allison currently writes for Credit Solutions and she is completing an unfinished work of her late grandfather. For more articles by Allison on bankruptcy, visit http://www.creditsolutions.com. Credit Solutions is offers a leading debt consolidation alternative.

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