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
A payment made by the borrower over and above the scheduled mortgage payment. If the additional payment pays off the entire balance it is a prepayment in full; otherwise, it is a partial ...
A biweekly mortgage on which biweekly payments are applied to the balance every two weeks, rather than monthly, as on a conventional biweekly. ...
Fees assessed by lenders when payments are late. Late fees are usually 4% or 5% of the payment. A borrower with a 6% mortgage for 30 years who pays a 5% late charge every month raises his ...
A borrower who submits applications through two loan providers, usually mortgage brokers, without their knowledge. Home purchasers sometimes submit more than one loan application as a way ...
Equations used to derive common measures used in the mortgage market, such as monthly payment, balance, and APR. ...
A very large increase in the payment on an ARM that may surprise the borrower. The term is also used to refer to a large difference between the rent being paid by a first-time home buyer ...
A comprehensive and time-adjusted measure of loan cost to the borrower. IC on a Mortgage: IC is what economists call an 'internal rate or return.' It takes account of all payments made by ...
An option attached to a mortgage, which allows the borrower to pay only the interest for some period. A mortgage is 'interest only' if the monthly mortgage payment does not include any ...
The interest rate adjusted for intra-year compounding. Because interest on a mortgage is calculated monthly, a 6% mortgage actually has a rate of .5% per month. If there were no principal ...
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