When in debt often the homeowners are baffled regarding the avenues through which they can get rid of the outstanding amount. An easy way to do so is through debt consolidation where your debts or the loan on mortgage will be consolidated to one single amount, and you need to pay off the same at a reduced rate of interest. In a debt consolidation process, you can consolidate the different loan into a single one at a fixed rate and also at a low rate of interest. Consolidation of debt is applicable for both the secured and unsecured loans.
Your home is your collateral
In the secured loan, your asset will serve as collateral and often house serves as security. If you are opting for a secured debt consolidation then, the mortgage will be placed against your adobe. With collateralization of your loan, you can lower the rate of interest and if the situation arises then you can also opt for foreclosure of the asset to pay off the loan. In this form of debt consolidation, the risk of the lender is low. As a result, low rate of interest is levied on the amount. In the secured form of debt consolidation, a number of collateral’s can be used.
Home equity loan
The most common collateral that placed for consolidation of the debt is the one related with real estate or home. Home is the most important asset that any individual has and often it involves a high amount of risks. You can use home equity loan as collateral for consolidating your loan. In the traditional form of home equity loan, you will receive a hefty amount of money that can be sued to pay off your debt. Whereas in the line of credit, credit account is involved in the process and you can utilize the same to pay off the debt.
Pay off your debts
As part of the debt consolidation process, the amount that you will get is used for paying off the debt. The credit accounts are now moved a new loan and this will are charged with a high rate of interest. In the home equity loan, low rate of interest will be charged by the lenders. So if you are facing irregularities in paying the loan in each month then consolidate your loan by place in collateral. However, tit is advisable to opt for this process at the earliest as the more you wait, there will be a negative effect on your credit score.
Refinance the mortgage
Another option in this regard is to refinance of the mortgage. The mechanism of the same is similar to that of placing home equity loan as collateral for consolidation of debt. The difference between these two lies in the fact that in the first one a second loan is obtained on the original mortgage amount, but in refinancing an existing mortgage is replaced by a new one. Refinancing an existing mortgage has a plethora of benefits. First the rate of interest charged on the same is lower than with other forms of debt consolidation. It is more economical than the other forms of consolidation.
Invest in other avenues
The equity that is obtained through refinancing can serve as leverage to improve the finance of the borrower. With this equity, you can also opt for various investments as the interest that you gain is higher than the amount that you pay for a mortgage. The best part of the secured debt consolidation is that you will need to pay an affordable amount of monthly installment at a lower rate of interest and this helps the borrowers to be free of debt in a short span of time.