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 letter from a lender verifying that the price and other terms of a loan have been locked. Borrowers who lock through a mortgage broker should always demand to see the lock commitment ...
The maximum allowable decrease in the interest rate on an ARM each time rate is adjusted. It is usually one or two percentage points. ...
Refinancing that omits some of the standard risk control measures and is therefore quicker and less costly. The rationale for streamlined refinancing is that, while it is an entirely new ...
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 ...
A loan with no down payment. ...
A mortgage Web site designed to provide leads to lenders. A 'lead' is a packet of information about a consumer in the market for a loan. Lenders pay for leads, and these sites are an ...
The sum of the monthly mortgage payment, hazard insurance, property taxes, and homeowner association fees. Housing expense is sometimes referred to as PITI, standing for principal, ...
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 contribution to a borrower's down payment or settlement costs made by a home seller, as an alternative to a price reduction. ...
Have a question or comment?
We're here to help.