Debt Consolidation Calculator
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Wading through the sludge of consumer debt can seem like inescapable financial quicksand. Consider extracting yourself from this economic mud pit and putting yourself in a better financial position with a consolidated loan.
Choosing a debt consolidation refinance option can help you save by locking in a lower interest rate through your monthly mortgage payments. Hero Loan is here to show you how you can calculate a less debt-encumbered future using certain inputs via a debt consolidation calculator.
Table of Contents
How Can I Use my Built-In Home Equity to Put Myself in a Better Position Financially?
Consumer debts usually come in the form of revolving or installment debts and can include things like credit cards, student loans, auto loans, etc. Take advantage of your home’s built-in equity that has accumulated over time by leveraging it to consolidate your outstanding consumer debts with a debt consolidation refinance loan.
This refinance option, also known as a conventional mortgage, a home equity loan, or home equity line of credit (HELOC) can put you in a better position financially by securing your unsecured debts while getting you a loan with better rates and terms. While the VA mortgage lending program already provides you with a financial leg up, make sure that you have strong credit and evidence of financial reliability to take full advantage of the better rates and terms offered.
With a home equity loan, you can borrow additional funds from your new mortgage, usually at lower interest rates and larger loan amounts than personal loans or credit cards. Repayment periods spread out over a longer time can help put you in a better position financially by allowing you to make more manageable monthly payments.
How Do I Calculate My Debt Consolidation Loan?
A consolidated debt calculator consists of two main debt categories: the culmination of your total consumer debts and the estimated total with your new debt consolidation loan. See the inputs below to determine the information required for each variable to calculate your monthly payments under a debt consolidation loan.
- Credit Card Debts. Credit card debts are a type of revolving or installment consumer debt. For this input, you will need to provide the current balance due on your credit card loans, the interest rate, and how much you pay off monthly (not necessarily the minimum balance due).
- Installment Loans. Installment loans are types of private loans that are repaid in installments. This can include auto loans, student loans, and other outstanding installment loans. Be thorough with the information you input for your installment loans to get a more accurate estimate on your debt consolidation loan.
- New Annual Interest Rate. Input your new interest rate that will be issued under your new debt consolidation loan. By securing outstanding consumer debts with your consolidation loan, you should expect to see a significant drop in your interest rate as there is less risk associated with this kind of loan.
- New Debt Consolidation Loan Term. Put this information in according to how many months are negotiated on your debt consolidation loan. With your debt consolidation loan, a structured payment plan will be established to guarantee the loan is paid off on schedule. Payment schedules can occur in weekly, biweekly, semi-monthly, or monthly installments.
- Upfront Loan Fees. Some upfront costs are required for your loan approval and evaluation that do not get rolled into your new loan. This may include appraisal fees, credit reports, loan origination fees, etc.
- Savings Rate. This is the rate you would have received if you had put your closing costs into savings. For most people, your short-term savings rate will fall between 2% to 5% annually, which may not seem significant, but it can add up to thousands of dollars based on your issued loan amount.
- Discount Points. When you close on your home loan, you have the option to set yourself up for a better interest rate by purchasing discount points. They can be used to lower your monthly payments under your debt consolidation loan. One point is calculated at 1 percent of your mortgage amount (or $1,000 for every $100,000).
- Income Tax Rate. You will combine your state and federal income tax rates to determine your income tax savings when you use a home equity loan to consolidate your debt.
- Closing Costs. Closing costs are typically rolled into your loan and dispersed to be paid over the term of your loan. Closing costs may include but are not limited to: appraisal fees, title search fees, title insurance, and legal fees. Bonus: Hero Loan will pay for your appraisal fee!
- VA Funding Fee. This is a one-time fee that allows for future eligible military service members to benefit from the rates and terms provided through the VA lending program. For first-time VA loan usage, the rate is charged at 2.3%. For subsequent VA loan usage, the rate is charged at 3.6%. This rate can be reduced by putting down a 5% downpayment.
To get a more precise estimate concerning your monthly payments with a debt consolidation loan, research your inputs before filling out the information in the calculator. This financial tool can be used as a helpful starting point when deciding if taking out a loan against your home equity is the right financial decision for you as an individual.
Which Type of Home Equity Loan Should I Choose?
There are two types of home equity loan options you can borrow against a fixed-rate, lump-sum option, and a home equity line of credit, or HELOC. Both of these loan options work to consolidate your debt by using your house as collateral to refinance into a lower interest rate. Alternatively, you may want to do a cash-out refinance, which allows you to leverage cash against the built-in equity of your home.
- Fixed-Rate, Lump-Sum Loan Option. This option is known as a home equity loan. It offers stability and predictable monthly payments with a set (or fixed) interest rate determined by a negotiated term. Expect the terms on this loan type to fall within a range of five to 15 years. It must be paid back in full if the home is sold. Be mindful of closing costs that will be tacked onto this loan option. You should choose a fixed-rate loan if you are looking for a one-time, straightforward cash option, or if you already have a low-interest mortgage and do not wish to refinance your loan.
- HELOC. You can use your HELOC as a revolving line of credit that you draw from (usually 10 years) and repay (usually 10-15 years) depending on your negotiated terms. HELOCs come with variable interest rates that fluctuate over time per the market trends. This loan option is best suited for people who want the flexibility to pay as they go.
- Cash-Out Refinance. This loan option is not explicitly a home equity loan type, but it can be used similarly by receiving cash directly from your home’s built-in equity. With a cash-out refinance, you can refinance your current mortgage for more than what you currently owe, and then take the difference in cash. A cash-out loan is best for you if you are looking for one consolidated loan secured at a lower rate or different loan term.
There is less risk with a cash-out refinance compared to a home equity loan because with a cash-out refinance you are essentially getting a new first mortgage whereas with a home equity loan you are taking out a second mortgage which could leave you vulnerable to defaulting on your loan. Your credit score and financial statements will be evaluated by your lender to determine your eligibility for a cash-out refinance.
Keep in mind that because you are using your home as collateral to secure your consumer debts, there is a certain amount of risk involved with a home equity loan or a HELOC. Before deciding to take out a home equity loan, make sure you are in a position to continuously make on-time repayments on the loan. Otherwise, you could become vulnerable to foreclosure and potentially lose your home.
Compared to conventional home equity loans, the VA program offers eligible service members up to a 10% increase in how much they can borrow against their home’s built-in equity at up to 90% (conventional home equity loans typically go up to 80%). To qualify for a home equity loan approval, your lender will need to evaluate your credit score, financial records, and combined loan-to-value ratio (CLTV). The CLVT is calculated by dividing the combined value of the two loans by the appraised value of the home (which usually cannot exceed 80%). Then, after that, you’ll choose which loan type best suits your financial needs.
How Can The Hero Loan Help?
A debt consolidation calculator is a great tool for homeowners to use when gauging an estimate on how much they can potentially save by locking down unsecured debt into a consolidated loan. However, talking to an Expert lender whose mission is to put you in the best financial position by getting you the best deal on a loan can help you make a more confident and informed decision.
At Hero Loan, it is our mission to support our qualified veterans, eligible military service members, and their families to get the best deal possible on a loan so they can put themselves in the best financial position. Our team of friendly lending experts is made up of members that come from the same communities we serve, helping us relate to our clients personally and meet their needs on an individual level. We are proud to give back to our military service community through our efforts to support veteran-owned businesses, events, and philanthropic projects like The Fisher House Foundation.
Call us today at 866-221-8733 to discuss if a debt consolidation loan makes sense for your financial situation. Our friendly lending Experts are also available to chat online during business hours to discuss how you can take advantage of your home’s built-in equity to put yourself in a better position financially.