Mortgage Consolidation: I Have A Bad Mortgage, What Should I Do?

Many of us find ourselves trapped in bad mortgages, our houses are worth less than when we bought them so we are “underwater” and the mortgage consolidation
payments are simply too high. Continuing to pay sky high rates on an ever depreciating asset have left many people shaking their heads and resulted in many people walking away from their homes, once the cornerstone of the American dream. For many people a home mortgage refinance plan will simply not work, it will only delay the inevitable. The homeowners who are in the most trouble are speculators and those who bought well beyond their means.

Buying a million dollar home on a 50,000 salary will not work over the long term. Unfortunately many lenders and many borrowers did not take the time to educate themselves about the financial reality of interest only loans or 3 or 5 year adjustable rate mortgages (ARMS). These types of loans are extremely risky and really designed for people who cannot afford to pay for what they are purchasing. An interest only loan is exactly what it sounds like, a loan where you only pay the interest on the money borrowed. This loan only makes sense for flippers and speculators who expect to buy a property and be out of it in a short time.

You will significantly reduce the amount you owe on the car within 5 years ( residual will still remain) the amount by which you have reduced the lease should be such that when you come to sell the car its value should be sufficient for you to pay out the residual under the lease.
If you decide on debt consolidation then after 5 years of a standard 25 year loan you will have only made a minimal reduction to your car loan and it is unlikely that if you sold the car after 5 years you would get a price that would repay the outstanding loan Compare $25,000 car. 5 year lease of $15,000 @10.5% with residual of $10,000

Through such a debt consolidation exercise you then reduce the overall monthly outgoing and thereby improve your cash flow. e.g. $120,000 @ home + $20,000 credit card @ 6.99% p.a = $8388 p.a. Your monthly outgoing after debt consolidation = $699. The monthly saving after debt consolidation is $213. What you need to remember however is that while you are paying a lower monthly repayment, you will be paying this amount for a longer time. Most personal loans and credit card debt require either a minimum payment over a period of time e.g. a personal loan will most likely be for a maximum term of 10 years. On the other hand, home loans are generally for 25 or even 30 years. So, before debt consolidation your monthly payment is calculated to repay the loan in 10 years whereas after debt consolidation your monthly repayment is calculated so you repay the $20,000 over a 25 years term.

Rather than deplete everything you have to hold onto this house, you may be better off turning over the keys to the bank and renting a house. Understand that if you do decide to follow this path, your credit will be ruined for seven years and in some states banks can and will go after you personally for the difference between your debt and what they are able to get for the house.

Learn more about Obama Mortgage Relief Plan Qualifications.