The success of consolidation is often based on the financial behavior that follows.Debt consolidation can bring about a single debt payment and a lower interest rate with subsequent real dollar savings. However, the success of the consolidation is often based on the soundness of the financial behavior that follows.
To consolidate your debts there are basically two options if you have equity and good credit. These are home equity loans and refinanced mortgages. A visit to your professional mortgage broker can help you to decide which one is right for you.
To make a home equity loan work, experts advise the following:
- Practice living on a lower income before applying for the loan and save what you would have spent.
- While your loan is pending, don’t take on additional debt.
- Choose a short payment period. Even 10- to 15-year home equity loans can be costly in interest payments.
- Don’t borrow more than 80 percent of your home’s value. This can put your home at an unnecessary risk.
- Avoid low introductory teaser rates and credit cards linked to a home equity line of credit.
- If your mortgage is small compared to your home’s value or you are paying an interest rate higher than current rates, you may decide that refinancing an existing first mortgage is your best option. If you do, here are some tips to consider:
- Only pay for the refinancing that you can afford. If a 15-year refinance means the monthly payments will be too high, don’t do it.
- If you have the cash, pay your closing costs up front. This will save on financed interest charges over the term of the loan.
- Keep making the same monthly payments. If you were able to manage all your payments before consolidation, keep doing so now. The extra money paid on the refinanced mortgage can save thousands of dollars.
Whichever option you might choose, it is important to set clear and achievable debt consolidation as part of your goals, with confidence that it can be achieved.
Premiere Mortgage has offices on Maui and Kaua‘i and provides a wide range of services to the real estate community. Tricia Morris may be reached on Maui, in Kihei, at 874-8800, Wailea, at 891-8900, West Maui at 665-8800, on Kaua‘i at (808) 822-2300, or toll-free at (800) 813-7711.