What exactly is a debt consolidation home equity loan? This is kind of a hybrid between two types of loans, both the age old debt consolidation loan and the all famous home equity loan. If you are considering consolidating your credit card, auto loan, and other unsecured debt into one lower payment then all of them combined, this may be the loan for you.First, I would like to discuss the loan that we are talking about. A debt consolidation loan, by itself, works like this. Let’s say you have 8 bills for credit cards, an auto loan, and 2 small signature loans at a small lending institution. The total balance is $14,500 in debt. Your current payment is $426 every month. A debt consolidation loan will roll all these loans into one and stretch out the length of payment to 5 years. At current rates the new payment will be $246 per month.Second, we will discuss the home equity loan. Just as it sounds, this is a loan against the equity in your home. If you have sufficient equity in your home, this kind of a loan can be easy to get as the creditor will use the home as collateral for the loan. If you owe $145,000 on your home and the value is appraised at $235,000, there is $90,000 in equity.However most equity loans are only allowable on up to 70% of the value. Using the same figures, this makes the value of your home as far as the bank is concerned for the loan, $165,000. So you would be able to get a loan of $20,000. This loan would be for a term of 5 to 20 years and could considerably reduce your monthly outlay. The same $14,500 borrowed on a ten year debt consolidation home equity loan, would have repayments of $152 each month.With debt consolidation you will pay less but usually for a longer period of time. If you are in desperate need of lower payments in order to survive, this can be a good deal and save your credit rating.One of the pitfalls of the debt consolidation loan is credit qualification problems. If you have already been experiencing a hardship before you finally applied for the loan, this can cause you to pay a much higher interest rate. In some cases, you may not be able to qualify for the loan at all. The trick is to apply for the loan if you see the trouble coming, not after you have been in the middle of personal financial hardship for months.A debt consolidation loan can be a good thing and save you much hardship and heartache. However, you must be aware that the debt consolidation loan that is using your home equity as collateral can continue to take a big chunk out of the equity for a long time. If home values fall, you could be in debt for more than your home is worth.Just use good judgment and think wisely before using your home equity to consolidate debt. Always seek the advise of a financial professional to help you make a wise lending decision.
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