Managing Debt ~ The mortgage difference.

The least expensive way to borrow money, if you own a home, is through your mortgage.  When your mortgage term is up you may want to look at some of the higher interest rate debt and lump it in with your mortgage.  With the amorization spread out over a longer period of time this would mean that if you are making regular payments (to your credit card, for example) that you can continue to make those same payments on the mortgage and pay down the principle that much sooner.  The reason why your mortgage is offered at a lower interest rate is because it is secured by your house.  Some clients tell me they have no mortgage but when I dig in deeper I realize they have a secured line of credit.  Folks....that IS a mortgage.  Any debt secured by your home is a mortgage.  The difference is that a term-oriented mortgage (fixed mortgage) is non-revolving.  What this means is that you have an outstanding balance and you make payments to it but you cannot re-advance the difference.  Also in a fixed mortgage your interest rate is known for whatever term you have selected.   In a secured line of credit your payment fluctuates with the interest rate environment. You can also re-advance your line of credit so it is considered to be revolving debt.  For example, if my secured line of credit is $100,000 and my balance is $25,000 then I can still advance $75,000.  The fixed mortgage does not have that ability.  Of course, one major difference I have not discussed is payment options.  With a fixed rate mortgage you may be able to increase your payments by a certain percentage and also make a lump sum payment on the anniversary date but if you win the lottery you cannot payout that mortgage without penalty....and if you are in the early part of your term, maybe not at all.  With the secured line of credit you can pay whatever you wish so if you win the LottoMax $50,000,000 this Friday you can pay off your secured line of credit with no problem!!!