Before you know it you are up to your ears in debt. It may be your auto loan, outstanding credit card bills or money you have borrowed to tide over some immediate requirements. At such times you may think of mortgaging your home to pay off your debt. In another scenario you may be faced with hospitalization expenses or a child’s education expenses with no funds in hand and then the only alternative is to mortgage your home.

Understanding the debts to repay back

In the first instance you may be able to consolidate your debts and obtain a loan against home mortgage and secure the benefit of a lower interest rate. Unsecured credit always attracts a higher rate of interest whereas with your home as security, you gain the benefit of a lower rate of interest. However, is it worth mortgaging your home if you have cash flow problems? The general formula is that the monthly repayment amounts should not exceed 20 to 30 percent of your monthly income. If you consistently miss out on monthly payments you get notices and ultimately it leads to foreclosure and loss of property. Thus, you have to be cautious before securing debts towards your home.

If, however, you are in a situation where you cannot make monthly payments, it is wise to approach the lender and ask for extensions or for restructuring the loan. You may have to pay a higher rate of interest for installments you miss but your home remains secure.

Play safe while repaying debts

Another way to avoid going in for a home loan is to file for bankruptcy. This way you get a court order and can avoid paying debts or the debts are secured. You may be allowed to keep your house and make a fresh start. Your credit rating is affected and it may take about 10 years to repair it.

A suitable alternative to mortgaging your home when faced with outstanding bills and payments on auto loans is to consider a debt management plan and choose only a trusted debt management company. They will negotiate with your creditors and arrange a suitable repayment plan and option. You make payments each month to the debt management company who, in turn, pass on payments to your creditors. Check their statements each month to ensure payment is passed on to each creditor on your behalf. When you go in for debt management plan you have to be punctual with monthly installments.

If you have already mortgaged your home and find you are tied into a fixed rate of interest and a higher monthly repayment amount, you can always refinance your loan though it may involve an expenditure of about 3%. However, through refinance you can extend the term of the loan, go in for floating interest rate or the current rate of interest and thus gain the benefit of a lower monthly repayment amount to ease your cash flow. There is no reason to be tied into a higher APR when you can easily restructure, consolidate and refinance debt.For more information visit

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