If you are a homeowner and also have several credit cards that you would like to pay off then the thought of consolidating them into one loan using a 2nd mortgage debt consolidation loan has probably crossed your mind. However, consider doing a littler research as there are some things to know before you sign any paperwork.
The thought of having one payment as opposed to many has made you think that this approach is worthwhile and maybe it is. For one thing, the interest rate will be lower as compared to credit cards for instance. By using your house as collateral, the risk is minimized in the bank’s eyes. However, you can also expect to have a higher interest than the one on your primary mortgage simply because you are adding a second lien to the property. This point is neither good nor bad but just something to be aware of.
Determining the amount of equity in your house is not a difficult step. Hire an appraiser that is recognized by the bank with whom you wish to borrow money so that the house’s value can be established. Next, subtract the primary loan balance from the appraisal and this will be the equity that you have in your house. It is recommended that you not borrow money to offset the your whole equity in the event that your finances take a turn for the worse.
Once you have figured out how much equity you have and also established how much money you need in order to consolidate debt then the process is not difficult from here. The bank will look at your credit history to see how reliable you are but overall 2nd mortgages are not that hard to come by. Before you borrow more money, though, be sure that you have decided to stop using credit for general spending like clothes and other stuff. The last thing that you want to do is borrow more money if your habits have not be reigned in. Try to create a detailed budget that will help you track every penny spent.
In summary, using your home to eliminate debt is a very risky move. A 2nd mortgage has some upside but also some downside that should definitely be understood. Lastly, consider talking to a certified professional who is up to speed on consolidation loans and who can provide some guidance as well.
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