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
Refinancing for an amount in excess of the balance on the old loan plus settlement costs. When the main objective of a refinancing is to raise cash, the relevant question is whether the ...
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 ...
Insurance provided the lender against loss on a mortgage in the event of borrower default. In the U.S., all FHA and VA mortgages are insured by the federal government. On other mortgages, ...
A lender who offers mortgage loans directly to the public. ...
The frequency of rate adjustments on an ARM after the initial rate period is over. The rate adjustment period is sometimes but not always the same as the initial rate period. As an example, ...
A mortgage on which half the monthly payment is paid every two weeks. This results in 26 payments per year, which is the equivalent of 13 monthly payments rather than 12. Because of the ...
The ratio of housing expense to borrower income. This ratio is one factor used in qualifying borrowers. ...
Also called variable or flexible rate mortgage, an adjustable rate mortgage (ARM) is a mortgage where the interest rate is not constant, but changes over time by the mortgage lender. ...
The definition of an assumable mortgage is what happens when a buyer assumes or takes over a mortgage that the seller contracted. This is a type of financial arrangement that passes an ...
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