Home Equity Loans Remain Alternative to Debt Consolidation |

With mortgage interest rates expected to remain low in the foreseeable future, home equity loans might remain a viable alternative to debt consolidation loans for consumers owing large amounts. A recent story by MarketWatch, the online financial news site run by the Wall Street Journal, reported that interest rates in general are expected to remain low. Analysts from RBS Securities, National Penn Investors Trust, DWS Investments and others were quoted in the story as saying that they expected interest rates to rise only from 0.1 percent to 0.25 percent during the next several months. This means that the interest rates on home equity loans will remain low, too.

The Home Equity Alternative

For homeowners, home equity loans have long been an effective way to pay down big debts. They are often a better alternative than are debt consolidation loans because they come with lower interest rates and fees. They also don’t have the same negative impact on credit scores that debt consolidation does. When mortgage interest rates fall to record lows, as they have during much of 2009 and early 2010, these loans are an even more attractive option.

Not Right for Everyone

Of course, not everyone can take on a home equity loan. For one thing, borrowers have to be homeowners. Secondly, they must have enough equity in their homes to support a loan. For many homeowners, equity is a serious issue. According to real estate data firm First American CoreLogic, nearly 25 percent of U.S. homeowners, because of falling housing values, were underwater in the third quarter of 2009. This meant that they owed more on their mortgage loans than what their homes were worth. These homeowners, obviously, would not have been able to take out a home equity loan. Home equity loans are also not the best choice for borrowers who have a history of missing payments; borrowers who default on these loans can lose their homes.

Debt Consolidation Homework

These consumers who do face a mountain of debt and can’t take out a home equity loan can still rely on debt consolidation loans. These loans do come with some negatives: They boast high interest rates and origination fees. They will cause consumers’ credit scores to fall. But they will stop the calls from collection agencies, and they will put consumers on a path toward paying off their debts. Borrowers, though, need to do their homework before agreeing to a debt consolidation loan. They should make sure they know exactly how much they’ll pay for the loan and how long it will take them to pay off their creditors.