Mortgage Rate News

Every now and again a reader asks a great question that I feel should be answered for the benefit of all. Today’s question certainly qualifies:

All this talk of recession has me concerned about paying of my credit cards. Should I use a home equity loan to pay them off?

This is a great question, since it comes up so much in terms of debt consolidation. Many ads on TV, despite current worries over the mortgage market, still tout debt consolidation home equity loans as a way to pay off credit card debt.

Advantages to using a home equity loan to pay off credit card debt

There are some advantages to using a home equity loan to pay off credit card debt. There are tax benefits, and the interest is lower than what you are paying on your credit cards. Plus, it helps you get your payments down to one a month, making your personal finances easier to manage. That’s about where the advantages end.

Disadvantages to using a home equity loan to pay off credit cards

There are definite disadvantages to using a home equity loan to pay off credit cards. One of them is the fact that you will have to borrow against your home. This is a tangible asset. You are taking unsecured debt (credit cards) and securing it (with your home). Do you want to risk your home for credit cards?

And, with current mortgage market concerns, you may find that 1. you don’t have as much equity as you thought you did and 2. you could end up in a negative equity situation. Neither of these things is pleasant.

Other options

It is possible to consolidate your debt through other types of loans, or through an agency (watch out for fees, though!). You can also use aggressive debt reduction to pay off your credit cards faster, one by one. Also, if you are very disciplined, you can think about using credit card offers for 0% intro rates to your advantage. But be careful to cancel excess credit cards as you pay them off.

Tags: home equity loan, mortgage loan blog, home mortgage loan, pay off credit cards,
second mortgage, debt consolidation, aggressive debt reduction

Have a mortgage? With an economic slowdown — if not a recession — on the way, it is a good idea to carefully consider where you are at with your mortgage this coming year. You want to be able to continue making mortgage payments, since they will help you protect one of the largest assets you have. Here are 4 mortgage tips that can help you make sure that you can make your mortgage payments this year:

1. Check for resetting mortgage rate. The first thing to do is check for a resetting mortgage rate. If you have a teaser rate on your home mortgage loan, check to see what the new rate is likely to be. You are going to need to prepare to make higher mortgage payments. If your resetting mortgage rate doesn’t happen until next year, it still doesn’t hurt to start preparing now.
2. Make a family budget. This is very important in any circumstance, but especially important in terms of making mortgage payments. You should look at your income and expenses, and figure out what you need to do to limit expenses. The time to get your finances in order is NOW, before you are forced to. Make sure that your mortgage payments are included as one of the first priotity expenditures.
3. Contact your mortgage lender. If you think that making your mortgage payments is going to be a problem, contact your mortgage lender. There are programs available to help you restructure your home mortgage loan so that you can make your payments. Letting your mortgage lender know ahead of time can help you increase your chances of finding a solution.
4. Refinance if you can. If you have an adjustable rate mortgage, or if resetting mortgage rates have you worried, try to refinance. Refinancing to a fixed rate can help you save money over the life of your home mortgage loan. Additionally, it will make budgeting your mortgage payments much easier.

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mortgage payments, recession, family budget

Cash-out home equity loans are falling out of favor. The number of people using home equity loans to get some cash is falling as lenders tighten standards and as home values decrease. Declining home values mean that there is less equity available for borrowers to use. Reuters reports on who is likely to get cash out home equity loans in the current climate:

“Borrowers we are likely to see refinance will be those with resetting adjustable-rate mortgages and those who have had their homes long enough that recent house price declines are not a serious threat to equity,” Frank Nothaft, Freddie Mac’s chief economist, said in a statement.

However, this may signal some problems in the wider economy. Many people use cash-out home equity loans for debt consolidation, hoping that easier terms will help them get out of debt faster. Additionally, cash-out home equity loans are responsible for some of the economy’s liquidity overall, as those with cash out loans spend the money on home improvement, vacations and other items.

These issues beg the question: Are we too dependent on debt as an economic driver? As foreclosures mount and as the economic stall, many will begin to ask themselves whether or not an economy that depends so much on Americans having a great deal of debt is a good thing.

While cash-out home equity loans can help those in debt by providing lower payments and interest rates, and provide tax advantages, one might wonder if more debt is really the solution to debt. And in many cases, debt continues to pile up, even after the home equity loans. Add this to the fact that it is harder now to get loans, and a bigger crisis may be looming for the economy.

Tags: home equity loans, home equity, mortgage blog, mortgage trends,
second mortgage, debt consolidation, home equity line of credit