When you take out a secured debt consolidation loan in the form of mortgage it can be your real life saver, or debt saver in fact. There are in fact two types of loans you can choose to take out when you want to consolidate your loans: secured and unsecured loans.
- Secured loans are those that are protected by an asset such as your home or car as collateral. The lender can use it in case of any default. This means that the lender will typically retain the title or deed to the asset until you repay the borrowed amount in full. This collateral actually gives the creditors some sort of financial security and a sense that the balance will be repaid by you.
- On the other hand, an unsecured loan is riskier for the creditor because there is no collateral security attached to it such as a car, a house, s condo or a boat to recover the money in a case of default. In order to cover this risk of failure to repay the loan the rate of interest for the unsecured loans are often higher as compared to the secured loans.
The creditors typically evaluates the borrowers before giving these loans, especially the unsecured loans based on their disposable income, credit reports, credit scores, and employment history along with several others factors for consideration.
The rate of interest
In order to make sure that the mortgage loan serves your purpose of consolidating the debts you must first find out the interest rate of it.
- This is the amount of money that your creditor will charge you to use the asset in question.
- These rates are typically expressed in the form of a percentage calculated on the initial loan amount.
- This interest amount is normally paid back along with the principal amount over the periods of repayment called the loan term.
Usually, when you borrow you are supposed to consider this interest rate of your loan as the pivotal determining factor.
Therefore, it is very important that you are familiar with the different types of interest rates when you take out a mortgage loan to consolidate your loans. These are:
- A fixed interest rate: That is a type of interest that will continue to remain the same when you take out the loan over the entire tenure of your loan irrespective of the prevailing market rate. That means your monthly payments will remain the same over the entire period.
- A variable interest rate: This is another type of interest that will vary according to the prevailing interest rate of the market. This interest is normally charged on your outstanding balance and as a result your monthly payments may also vary due to these changes.
- An APR: APR or Annual Percentage Rate is described as the interest paid on your loan over a year. This is much different from the monthly rate of interest. APR is usually expressed as a percentage. This value includes any extra fees and costs that may be included in the loan transaction on top of the established rate which is why an APR varies from the standard interest rate. Typically, an APR ranges anywhere from 5.99% to 35.89% depending on the type of loan.
No matter what type of interest rate your loan may carry, it will be clearly mentioned in the loan contract. The creditors’ terms and conditions will also include costs such as loan origination or processing fees that are usually charged while establishing an account.
All these facts will help you to know your final cost of borrowing and decide whether taking out a mortgage is a feasible option to consolidate your loans or should you look for other debt relive options that you may find at Nationaldebtreliefprograms.com or any other for that matter.
The term factor
The loan term is another important factor to consider. This is actually the amount of time that the lender will give you to repay the amount borrowed along with the interest. Also known as the loan period, it may come as short term or long term depending on the type of loan and the amount, your credit and other factors.
- Short term loans must be repaid within a few months or maximum within a year.
- Long term loans on the other hand can be spread over 60 months and beyond.
The loan term is an important factor because it will eventually affect how much you can pay because the rate of interest may typically rise with the variance in the length of the term. That means the longer is the time you take to repay the borrowed amount, the more interest you will be paying for the loan in the end. Therefore, make sure you compare the loan terms and weigh it with your resources and affordability before you make any commitment to the lender.
The loan range
Another important factor to consider when you want to consolidate your loans with a mortgage is the loan range or the range of the possible loan amounts. Just like the rate of interest and loan terms, the amounts of loans may also vary.
- These amounts are normally based on the type of loan you wish to take out.
- The loan amounts may also vary depending on the qualifications of the borrower.
In fact, personal loans come in the smallest range as compared to mortgages and that is why people look for mortgage when they want to consolidate loans that carry high amount and high rate of interest.
Wrapping it up
Therefore, if you are considering taking out a mortgage loan to consolidate your high interest loans, then before you make any decisions, make sure that you understand the basic principles behind borrowing. It will pay you off well if you understand the primary components of all loans, namely the interest rate, the security component and the term.
This will help you to know exactly the amount that you need to repay every month towards your debt and be debt free.