Credit Repair Mortgage

Many consumers looking to ease temporary financial burdens may be tempted to turn the equity they've earned in their homes into quick and easy money to pay off bills that are taking some of the fun out of life at the moment. In some cases, taking out a home equity loan or second mortgage is a sound idea but it's a decision that demands serious and rational thinking first.

If the reason for considering such a loan is to pay off unsecured debts, such as student loans or credit card bills, the dangers of a credit repair mortgage may outweigh the benefits. If credit card or student loan payments are late, interest and penalties may become somewhat punishing and your credit rating will drop but you'll still have a roof over your head. If a credit repair mortgage payment is missed, you could lose your home.

Let's say, for example, Credit Cards A, B, and C have a combined total balance due of $10,000. You owe $25,000 in student loans. Your total balance due on these unsecured loans is $35,000.

Now let's say your home has an equity value of $40,000. On the surface, that looks like you could take out a credit repair mortgage of $35,000 to pay off those unsecured debts and have $5,000 still left in your home's equity value. On the surface, this is true.

However, that second mortgage comes with interest rates, too. The $35,000 you borrowed from your home's equity value will end up costing you lots more once the amortized value of the loan is examined. You'll probably be committed to many years of payments paying off a $35,000 home equity loan plus the interest it accrues. That leftover $5,000 in equity you were feeling so good about disappears almost instantly.

In the long run, that credit repair mortgage may not be saving you any money at all. In fact, it may cost you quite a bit more than paying off those unsecured loans individually would cost.

Another very dire consequence of a credit repair mortgage is default. A mortgage of any kind means your home is used as collateral to secure the loan. If you can't make the payments, you lose the home, no matter how long you've lived in it, how much you've paid for it, or how low the original mortgage drops as payments to it were made. That's right. You'll still need to continue making those original mortgage payments but, with a credit repair mortgage added, you'll be making a second mortgage payment each month, too.

And equity will not accrue as fast with two mortgages as it did with just one.

Homeowners need to be quite serious about the realities of a credit repair mortgage before they sign any papers. Today's economic recession won't last forever, even if seems as if that's case. When it's over, wouldn't it be much nicer to have a home and some nagging monthly bills to contend with than to have no home at all?