Unsecured loan and high interest rates are two inseparables and always come hand in hand. You may be happy with an unsecured loan as they involve less risk (no collateral) but what about the excess amounts that you pay as interests? Is it therefore safer to pay less and risk more or vice versa?
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Unsecured loans make you pay most of your hard earned money, which you should be saving for future, as interest. Besides, various unsecured loans (be it medical loans, credit card loans or shopping card loans) can stress you out, as it requires you to keep a careful track of all of them. So, consolidating loan may be a good idea for those that are in such situations.
Mortgage debt consolidation loans are secured loans
A debt consolidation loan combines all, or most of your unsecured loans, into a secured or unsecured loan.
In case of an unsecured loan, a debt consolidation loan will lessen the burden of keeping a track of various debts and allow you to focus on one payment instead. But you will still be paying high interest rates.
A secured loan involves a collateral e.g. you can easily use your house or any real estate property and secure a loan against it. This is called mortgage debt consolidation loan.
Why mortgage debt consolidation loans are preferred?
A mortgage debt consolidation loan can help you swap high interest debts with low interest debts. In fact, they are ideal in case of credit card debt because the credit card debts are typically at much higher interest rates than all other kinds of debts.
Mortgage debt consolidation also finds favor with lenders since the lender can stake claim to your property in case of you defaulting on payments. And since the lender’s risk on secured loans is lesser, you get lower interest rates on mortgage debt consolidation loans.
Mortgage debt consolidation can save you a lot of money, nearly 35 – 50%, if done correctly. Moreover, it helps you become more focused, as you will be making only one payment every month and there is no question of forgetting the payment dates. Further, you will always have a better grip on your financial situation and will always have the accurate information on debt balance.
Choosing a lender for mortgage debt consolidation loan
You may approach a debt management company or a lender offering mortgage debt consolidation loans. However, the key to success is to find a genuine company; failing which your problems will only increase. Here are a few indicators to tell a genuine one from a bogus company:
1. Ensure that the company is registered with the Better Business Bureau and follows the required regulations. Check their records for customer complaints and whether they have resolved the complaints to the satisfaction of their customers. This helps you determine their credibility.
2. Be careful with a company that promises you that you will be debt free in quick time (a few months). The companies that make tall claims might not be genuine.
3. A company that discusses both advantages and disadvantages of mortgage debt consolidation and doesn’t persuade you to sign up with them, will most likely be genuine. A company that is just interested in selling their services without much consideration to your debt situation, is a company that you must avoid.
4. A good company will take their fee in the form of a commission on the money they help you save and not as a percentage of your debt.
5. Always be wary of the fact that the single monthly payment you make should be much lesser than the cumulative amount you were paying earlier. Some companies may offer you lesser monthly payments but the interest rate might be higher than what you are currently paying. So, you need to keep a tab on both before deciding whether the deal is good enough for you.
6. Stay away from any company that claims to immediately remove negative information from your credit report. This cannot happen. You can only build your credit score over a period.
Debt consolidation mortgage, if done well, can be boon otherwise it will turn into a bane. Information and re-search will shield you against the bogus companies and bad plans.
