How to Decide if Mortgage Consolidation is the Best Alternative

If debt is not handled properly it can take over your life and turn your dreams into nightmares. If you find your own debt eating away at your money, then you need to find a way out. Mortgage consolidation may be the way to do it.

Instructions

Difficulty: Easy

1. Learn about mortgage consolidation. Mortgage consolidation can take several forms, such as a home equity loan, also referred to as a second mortgage, or a total mortgage refinance. The amount of equity that you have accumulated since you first purchased your home will determine the amount of money that you can apply for. You then use the money that is in excess of what you still owe on your original mortgage to pay off high-interest rate credit cards and personal loans.
2. Determine how much equity you have in your current home. Refer to your most recent property tax statement or hire a professional to perform a home value assessment. Next, determine how much you have left to pay on your current mortgage. If you don't know your payoff amount, contact your mortgage lender and ask them. Subtract your payoff amount from your home's current assessed value to come up with the dollar value of the equity that you have in your home.
3. Determine the amount of unsecured debt that you have. The easiest way to do this is to request a copy of your credit report. You can purchase your credit report online from a number of credit monitoring companies like Experian, MyFICO and Identity Guard. On your credit report you will find a list of most of your unsecured debts, how much your minimum payments are and how much your outstanding balances are. Add all of the outstanding balances together to come up with your total unsecured debt balance.
4. Determine if you have enough equity in your home to make a mortgage consolidation worthwhile. Subtract your unsecured debt balance from your equity balance. If the result is a negative number, a mortgage consolidation is probably not the right option for you. If the result is zero, a mortgage consolidation may be for you, but you will need to weigh the pros and cons before making a decision. If you have a large cushion of equity even after subtracting your unsecured debt, a mortgage consolidation is probably a good option for you to consider.
5. Determine if you can afford a higher mortgage payment each month. Subtract your usual monthly expenses (except for mortgage payment) from your usual monthly income amount. Subtract the mortgage payment that you would pay after the mortgage consolidation from what is left after subtracting your monthly expenses from your monthly income. If the result is a positive number, you have enough money each month to afford the mortgage consolidation. If the result is zero, you will have to really think about the pros and cons of the situation before making a decision. If the result is a negative number, you don't have enough monthly income to afford the mortgage consolidation.
6. Determine if you have other options to solve your unsecured debt problem. If your unsecured debt is less than $5,000, your best option is to try and make larger monthly payments to your creditors. This is because the fees and time it takes to process a mortgage consolidation will outweigh the benefits of paying off this small of an unsecured debt balance. If your unsecured debt is between $7,500 and $10,000 and you don't have very much equity in your home and you're not planning on buying a new home any time soon, and you don't know if you will be able to cover a larger mortgage payment, then you may want to consider debt counseling or debt settlement instead of a mortgage consolidation. Finally, if you have more than $10,000 in debt, and enough equity to cover this amount and can afford to pay a larger mortgage, then a mortgage consolidation is probably your best option. However, if you don't have the money to cover a larger mortgage payment, then you may want to consider alternative credit solutions like debt settlement.

Tips & Warnings

• Shop around for the best rates.
• Make sure you take into consideration application fees and early payment fees when you are comparing lenders.
• Mortgage consolidation can be a great option when interest rates are low.
• Mortgage consolidations give you a fixed payment amount every month.
• Taking out a mortgage consolidation loan can hurt your ability to put your home up for sale.
• Mortgage consolidation can put you into a position where you owe more for your home than it is worth.
• Don't believe all of the claims made by debt consolidation companies.
• Mortgage consolidations put your home at risk.