re-financing-to-consolidate-debt

www.dotcomhunter.com Re-Financing to Consolidate Debt Some homeowners opt to re-finance to consolidate their existing debts . With this type of option, the homeowner can consolidate higher inte rest debts such as credit card debts under a lower interest home loan . The interest rates associated with home loans are traditionally low er than the rates associated with credit cards by a considerable amou nt. Deciding whether or not to re-finance for the purpose of debt con solidation can be a rather tricky issue. There are a number of comple x factors which enter into the equation including the amount of exist ing debt, the difference in interest rates as well as the difference in loan terms and the current financial situation of the homeowner. This article will attempt to make this issue less complex by providi ng a function definition for debt consolidation and providing answer to two key questions homeowners should ask themselves before re-fin ancing. These questions include whether the homeowner will pay more in the long run by consolidating their debt and will the homeowners financial situation improve if they re-finance. What is Debt Consolidation? The term debt consolidation can be somewhat confusing because the te rm itself is somewhat deceptive. When a homeowner re-finances his ho me for the purpose of debt consolidation, he is not actually consoli dating the debt in the true sense of the word. By definition to cons olidate means to unite or to combine into one system. However, this is not what actually happens when debts are consolidated. The existi ng debts are actually repaid by the debt consolidation loan. Althoug h the total amount of debt remains constant the individual debts are repaid by the new loan. Prior to the debt consolidation the homeowner may have been repaying a monthly debt to one or more credit card companies, an auto lender , a student loan lender or any number of other lenders but now the h omeowner is repaying one debt to the mortgage lender who provided th e debt consolidation loan. This new loan will be subject to the appl icable loan terms including interest rates and repayment period. Any terms associated with the individual loans are no longer valid as e ach of these loans has been repaid in full. Are You Paying More in the Long Run? When considering debt consolidation it is important to determine whe ther lower monthly payments or an overall increase in savings is bei ng sought. This is an important consideration because while debt con solidation can lead to lower monthly payments when a lower interest mortgage is obtained to repay higher interest debts there is not alw ays an overall cost savings. This is because interest rate alone doe A gift from www.dotcomhunter.comwww.dotcomhunter.com s not determine the amount which will be paid in interest. The amoun t of debt and the loan term, or length of the loan, figure prominent ly into the equation as well. As an example consider a debt with a relatively short loan term of fi ve years and an interest only slightly higher than the rate associate d with the debt consolidation loan. In this case, if the term of the debt consolidation loan, is 30 years the repayment of the original lo an would be stretched out over the course of 30 years at an interest rate which is only slightly lower than the original rate. In this cas e it is clear the homeowner might end up paying more in the long run. However, the monthly payments will probably be drastically reduced. This type of decision forces the homeowner to decide whether an overa ll savings or lower monthly payments is more important. Does Re-Financing Improve Your Financial Situation? Homeowners who are considering re-financing for the purpose of debt consolidation should carefully consider whether or not their financi al situation will be improved by re-financing. This is important bec ause some homeowners may opt to re-finance because it increases thei r monthly cash flow even if it does not result in an overall cost sa vings. There are many mortgage calculators available on the Internet which can be used for purposes such as determining whether or not m onthly cash flow will increase. Using these calculators and consulti ng with industry experts will help the homeowner to make a well info rmed decision. PPPPP Word count 684 A gift from www.dotcomhunter.com