Falling Mortgage Rates Make Debt Consolidation More Interesting

By Richard Barrington
LoanPage.com Columnist

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By the end of August, mortgage rates had fallen over five of the preceding six weeks. This sustained trend toward lower mortgage rates increased the possibilities for real savings by using a home equity mortgage as a debt consolidation tool.

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.

Freddie Mac

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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