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
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Total costs charged to the borrower that must be paid at closing, by the borrower, the home seller, or the lender. In dealing directly with a lender, settlement costs can be divided into ...
A transaction in which interest is not paid on interest there is no compounding. For example, if you deposit $1,000 in an account that pays 5% a year simple interest, you would receive ...
The interest rate used to calculate the mortgage payment. The interest rate and the payment rate are often the same, but they need not be. They must be the same if the payment is fully ...
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Standards imposed by lenders as conditions for granting loans, including maximum ratios of housing expense and total expense to income, maximum loan amounts, maximum loan-to-value ...
The portion of the monthly payment that is used to reduce the loan balance. ...
Fees collected by a loan officer from a borrower that are lower than the target fees specified by the lender or mortgage broker who employs the loan officer. An underage is the opposite ...
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