Falling Mortgage Rates Make Debt Consolidation More Interesting

Fri, Nov 2, 2007

Home owners who have paid down a portion of an existing mortgage generally have built up some home equity against which they can borrow to offset other debts. While using a mortgage for debt consolidation means using your house as collateral, there are reasons this can make sound financial sense as long as you can keep up with the payments and avoid building your debt up further.

Three Reasons for Debt Consolidation
Basically, there are three reasons for consolidating debt into a home equity mortgage:

* » To lower the interest rate you are paying on your debt
* » To simplify repayment by concentrating debts into one source
* » To stretch out payments over a longer time to ease pressure on the monthly budget

Of these reasons, the first is the most attractive as it is the only one that represents the potential for actual savings. The other two are legitimate tactics for managing debt, but they do not actually save you money.

Current Mortgage Trend
The appeal of lowering the interest rate on debt is the reason the recent downward trend in mortgage rates is so encouraging. By the end of August, mortgage rates had fallen to 6.45%, down from a high of 6.74% earlier this year (those are thirty-year mortgage rates; fifteen-year rates are even lower).

The longer this trend continues, the more opportunities there will be for real savings by consolidating debt into a home equity mortgage. This can be just the cure for the many Americans who have been overwhelmed by debt.

[Via Freddie Mac]