Home Equity Loan Debt Consolidation
Debt consolidation most often foresees secured loan against an asset, most commonly a house or property serving as collateral. Secured loan greatly reduces the interest rates but increases the risk of losing your home if you fall behind on your monthly payments.
Most of the debt consolidation loans use home equity which is the difference between the market value and all liens on the property. For example, if you purchased a property or a house with market value $100,000 and took a mortgage loan for $70,000 your equity is on the day of the purchase $30,000. If you already payed $20,000 of your mortgage loan and the market value of your home has remained unchanged your home equity is $50,000 but if market value during that time increased on $150,000 your home equity is $100,000. However, if your property market value has fallen on $80,000 your home equity is only $30,000 because you still owe $50,000.
Using home equity for debt consolidation is often compared with a second mortgage because it is secured against the value of your home to convert all your unsecured debts into a secured debt. This means you can lose your home if falling behind on your monthly payments but because debt consolidation loan using home equity as collateral decreases the risk of the debt consolidator latter gives lower and fixed interest rates. However, this type of loan foresees an application fee which greatly varies from debt consolidation company to debt consolidation company.