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Homeowner debt consolidation loans - Use your home to pay off bills

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If you're a homeowner who has accumulated a lot of debt on your credit cards, medical bills, payday loans, store cards, etc, you can get relief through a homeowner debt consolidation loan. Such an option enables you to take out a secured loan or mortgage keeping your home as the security for the debt.

How homeowner debt consolidation loans help you

With a homeowner consolidation loan (or secured consolidation loan), you get the following benefits.


  • Consolidate high interest unsecured bills with a low rate mortgage.
  • Have your monthly payments reduced and pay off bills with ease.
  • Get rid of late fees and over-limit charges on credit card bills.

Where to apply for a secured consolidation loan

You can approach a mortgage lender, bank, mortgage companies, credit unions or savings and loan associations. You may also choose a broker who'll assist you in getting a fair deal from any of the lenders.

Criteria for getting loan approval

To qualify for a secured consolidation loan, you need to satisfy the following criteria.


  • Need to earn good income.
  • Should have a good credit score (680-700).
  • Should have 2 years of employment history.
  • Judgments and collections should be paid off.
  • Charge-offs should be paid off/removed through negotiation.

In case you have negative items such as bankruptcy on your credit report, you'll have to wait for at least 4 years after getting discharge from Chapter 7 and 2 years after being discharged from Chapter 13. Only after this time period is over, you can get approved for a conventional mortgage (not insured by the FHA or Federal Housing Administration).


Types of homeowner debt consolidation loans

There are 2 major types of homeowner consolidation loans. These are:


  1. Second mortgage: This is the kind of mortgage you take out against the equity in your home. Such financing option is available in the form of home equity loan and home equity line of credit. You may take an equity loan when you're already paying down the first mortgage on your home or when your home has free and clear title and there's no mortgage on it. Equity loans generally have fixed rates of interest whereas equity lines of credit are available as adjustable rate loans. You get an equity loan as a lump sum amount from your bank or lender. But a line of credit allows you to withdraw funds up to a certain limit, as and when required, within the draw period.
  2. Cash-out refinance: It's a financing option which allows you to borrow an amount worth the balance of the existing mortgage on your home and some extra cash which you'll use to pay off outstanding bills. With a cash-out refinance loan, you can pay back your mortgage balance with a lump sum payment as well as get rid of high interest bills.

    To determine whether you should take out a second mortgage or a cash-out refinance loan, you need to compare the costs you need to pay for each. Calculate the monthly payments on your first loan and the second mortgage. Then compare this figure with the monthly payments on your cash-out refinance loan. The one with the least monthly payment can work in your favor.

Risks associated with homeowner debt consolidation loans

Even if secured consolidation loans may be helpful, yet they are not free from risks. Check out the risks associated with such loans.


  • You may lose your home: If you default on homeowner debt consolidation loans, you should contact your lender asap and negotiate an alternative payment plan. If you do not communicate with the lender and make him aware of your situation, it is likely that the lender may sell your home to a third party and recover the balance you're yet to pay.
  • You may be scammed: There are financial institutions which involve homeowners in equity stripping scams. In such a scam, a lender makes an offer to provide a mortgage loan being fully aware that the homeowner is in poor financial situation. The lender may insist that you overstate your income on the loan application form so that your loan gets approved.

    Homeowners who go for equity stripping are themselves not sure as to whether they can afford the monthly payments. But just because they need the money to pay down their mortgage and save their homes, they accept such offers. The result is that the homeowners default and the lender forecloses the property without offering any alternative repayment plans thereby stripping them of the equity in their homes.

How to deal with the risks related to homeowner consolidation loans

To avoid the risks that come along with homeowner consolidation loans, you need to keep making the monthly payments on time. In case you're in financial hardship, consult the lender and work out an alternative plan to pay down your loan. Beware of homeowner consolidation loan scams. The best way to avoid such scams is to check the reliability of the lender prior to signing any agreement. Look for accreditations the lender has received from reputable organizations. Check if it's a BBB accredited business.


No doubt, homeowner consolidation loans offer a number of benefits such as helping you to clear your bills and allowing you to deduct interest on your taxes. However, if you don't qualify for a homeowner consolidation loan or you don't wish to use your home to repay bills, you may go for a consolidation program. But if you don't think you can afford the monthly payments in consolidation, you may enroll in a debt settlement program and clear your dues by paying an amount settled with the creditors or collection agency.




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