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
The portion of the monthly payment that is used to reduce the loan balance. ...
A provision of a loan contract stipulating that if the property is sold the loan balance must be repaid. A mortgage containing a due-on-sale clause is not assumable. This prevents a home ...
Same as term housing expense. The sum of the monthly mortgage payment, hazard insurance, property taxes, and homeowner association fees. Housing expense is sometimes referred to as PITI, ...
A mortgage loan transaction in which the lender assumes responsibility for an existing mortgage. A wrap-around can be attractive to home sellers because they may be able to sell their ...
Equations used to derive common measures used in the mortgage market, such as monthly payment, balance, and APR. ...
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. ...
Proliferation in the number of loan, borrower, property, and transaction characteristics used by lenders to set mortgage prices and underwriting requirements. Nichification is unique to ...
The maximum allowable ratio of loan-to- value (LTV) on any loan program. Generally, these are set by mortgage insurers or by lenders and can range up to 100%, although some programs will ...
The period used to calculate the monthly mortgage payment. The term is usually but not always the same as the maturity, which is the period over which the loan balance must be paid in ...
Have a question or comment?
We're here to help.