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 policy of a second mortgage lender toward allowing a borrower to refinance the first mortgage while leaving the second in place. ...
Authorization by the lender for the borrower to pay taxes and insurance directly. This is in contrast to the standard procedure, where the lender adds a charge to the monthly mortgage ...
A rate lock, plus an option to reduce the rate if market interest rates decline during the lock period. ...
To define a home equity line of credit, we can also take a look at how credit cards work. Similarly to credit cards, home equity lines of credit are sources of funds that can be accessed ...
The payment of principal and interest made by the borrower. ...
The number of days for which any lock or float-down holds. The longer the period, the higher the price to the borrower. ...
On an ARM, the assumption that the value of the index to which the interest rate is tied does not change from its initial level. ...
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, ...
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