Starting around the year 2000 interest rates began to fall, and house prices began to increase. This allowed many homeowners to re-finance their home to generate cash to repay high interest rate debt, like credit cards and finance company loans.For example, if you bought your house for $150,000 and had a $100,000 mortgage, your house had $50,000 in equity. If your house increased in value to $200,000, you now have $100,000 in equity. Since the bank or mortgage company originally only required you to have $50,000 in equity, it was very common for the bank to lend you another $50,000 when your house increased in value. Why?The bank advanced more funds for two reasons. First, because the home had increased in value, the bank still had the same amount of security as originally, so they have not taken on any new risk. Second, banks lend money to make money, so the more they lend, the more they can make.But beware: the era of ever increasing real estate prices and constantly lowered interest rates is over, at least for the next few years. That means that if you are considering a debt consolidation loan secured by your house, you should probably act quickly.The biggest advantage of a debt consolidation loan is that you can combine a number of loan payments into one monthly payment, making your monthly budgeting much simpler. And, if the debt consolidation loan is secured (or guaranteed) by the value of your home, you will get the best interest rate possible, so your monthly payments will be significantly reduced.It therefore makes sense to take your high interest credit card debts and pay them off with a debt consolidation loan secured by your house. The interest you pay will be dramatically reduced, allowing you to repay your debt months or years faster than if you had not taken out a debt consolidation loan.But remember, as house prices stabilize or decrease, and as interest rates continue to increase, your ability to get this type of debt consolidation loan may disappear, so if you think this is the solution for you, don’t wait. Act now, before you no longer have this opportunity.
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