Debt Consolidation and Credit Card Counseling

Is the standard term home equity loan right for you? These loans are best suited for borrowers who need a fixed amount of money for a well-defined expense. Examples would be a home remodeling, a daughter’s wedding, or a long desired Master’s degree. The loan requires a fixed monthly payment over a fixed amount of time at a fixed interest rate. The standard term loan is also well suited for those who need to consolidate their debt by combining several credit card loans, which can have high interest rates. The loan rate may be as little as 25% of the interest rate on a credit card, and the interest is deductible from Federal income tax. This allows the borrower to pay off the loan more quickly than if the debt remained on a credit card balance

An increasingly popular alternative to the standard term loan is the home equity line of credit. This type of loan works like a credit card or a checking account. The loan defines how much money may be borrowed, and may offer a final payback date. In the meantime, the borrower may write checks against the loan amount, either in full or a little bit at a time, as needed. Lines of credit feature a variable interest rate that may move up or down over time. If no money is borrowed, then no repayment is required. For this reason, a line of credit makes an ideal source of funds for “rainy day” emergencies.

One advantage of a line of credit is the ability of the borrower to borrow money against the loan again and again. If the line of credit is $10,000, and the borrower uses $5000 of it and then pays it back, the borrower still has $10,000 available to them. This makes a line of credit useful for less well-defined uses, such as a long-term home remodeling project, ongoing educational expenses and the like. The borrower may use the funds from the line of credit on an as-needed basis.

Terms vary from lender to lender, but some lenders may require a certain amount to be withdrawn at the time the loan is issued. In addition, and administrative fee may be assessed each time a check is written against the account.

A relatively new variation is the “reverse mortgage.” This type of mortgage is well-suited for senior citizens who may be cash-poor but “equity rich.” This type of loan has become more and more popular on both coasts, where home equities tend to be large.

Unlike a traditional mortgage, a reverse mortgage does not require regular payments. The mortgage is repaid as a lump sum when the home is sold. Even more interesting is that unlike a regular mortgage, anyone with equity in their home can qualify for a reverse mortgage. There is no income requirement for the borrower.

The reverse mortgage can pay out the funds in a line of credit, a lump sum, or in monthly payments. Interest accrues each month on the balance.

In addition, since the reverse mortgage reduces the equity of the property over time, the homeowner or their heirs could find themselves with no remaining value when the home is sold.

For more details on the loan application process and the fees involved, see our Loan Fees page.

If you have a mortgage with a high interest level, you may wish to ponder refinancing. You may consolidate your debt and reduce your loan payment. Ameriquest can arrange for you to refinance now.

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