Many people think that all debt consolidation loans are the same. However, it is important to select the right type of loan because debt consolidation loans in fact come in several loan types:
• Home Equity Loans: These loans are usually at a fixed rate. A home equity loan allows you to borrow against the value of your home which is not encumbered by a mortgage. You can usually take a long time to repay this type of loan, often at a low interest rate. As long as you do not exceed the value of your home, your interest is usually tax-deductible. Your home is used as collateral, so you need to take care to make your payments each month.
Home equity debt consolidation loans offer very long repayments terms, which may not be great if you need to be motivated to repay your debts fast. On the other hand, very long terms usually mean very low monthly payments, which can make even large debts manageable.
• Home Equity Line of Credit: These loans usually offer variable rates. Home equity lines of credit work similarly to home equity loans, but usually offer more flexibility. The equity of your home is decided and you get a line of credit that allows borrowing some or part of that amount to repay your loan. The benefits of this type of loan is that you can borrow a lot or a little whenever you wish, but you do need discipline to avoid using your credit line for non-essential things.
Even if you have a new mortgage or a large mortgage, you may qualify for a home equity loan for debt consolidation, as long as your home’s entire value is not taken up in the mortgage. If you paid some money down for your home, for example, or if your home has risen in value since you purchased it, there may be unused equity you can use for debt consolidation.
• Second Mortgage Loans: A second mortgage involves taking out a second mortgage on your home on the value of your home.
At BudgetPlanners.net we feel that debt consolidation loans are not the answer. You risk losing your home if you lose your job or any reason that may cause you to miss your payments? Turning your unsecured debt into a secured debt consolidation loan using your home as collateral should never even be considered, we have a better solution.
This article was a guest submission by Peter Frost of the website http://DebtQuotes.com
