Finance
What is 'debt consolidation' as it relates to Idaho home equity borrowing?
ACombining multiple mortgages into one
BUsing home equity (through a cash-out refinance, second mortgage, or HELOC) to pay off higher-interest debt like credit cards✓ Correct
CA government program to reduce mortgage debt
DRefinancing to get a lower interest rate
Explanation
Debt consolidation using home equity involves borrowing against home equity to pay off higher-interest debts. While potentially reducing monthly payments, it converts unsecured debt into debt secured by the home, increasing foreclosure risk if payments are missed.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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