Home Equity Loan: A Help in Credit Card Debts
Let us say for example that you have been diligently paying your mortgage payments of your house. This makes the value of your house much higher. But due to unexpected credit card debts, you need some money to help repay your debts or at least consolidate them but do not know where to start. One good way to repay this is through a home equity loan. The value of your house minus the amount you owe, like mortgages, on it is what is called equity. Now, you can use the home equity loan, or second mortgages as it is also called, to consolidate your credit card debts by using the equity of your home as collateral. You can go to debt consolidation agencies for help in obtaining home equity loans, but before they grant you this, they will try to negotiate first for a reduction in your credit card debt. Furthermore, lenders tend to grant home equity loans because they see it as reasonably safe because you cannot vanish with your house or hide from your loan because they hold your house as collateral. And they feel confident that the borrower would prioritize payment if their house is at risk.
There are two kinds of home equity loans, the standard home equity loan and the home equity line of credit or HELOC.
The standard home equity loan gives you the money you need in a lump sum. You pay this over the period of time you and the lender agreed upon. But once you received the money, you can no longer borrow more money from the loan. It is also important that you have listed down all your credit card debts or other debts that you want to include before you make the loan because the amount is already fixed. The interest rate of standard home equity loan is also fixed with the same amount of payment billed to you monthly.
The HELOC, on the other hand, is just the same thing except that it is more like a credit card wherein you can withdraw money whenever you need it and use the credit again as you pay off the principal. The interest rate, however, on HELOCs is variable since the interest rate you pay is only what you used not the total sum of your credit line.
There are also advantages why people tend to go for home equity loans for payment of their credit card debts. Not only does it have a lower interest rate, but it may also be tax deductible. Add that to the fact that the sum you can get from the home equity loan tends to be much larger than any other kind of loans especially if you have paid your mortgages diligently.
Home equity loan payment deadline is much shorter than first mortgage loans. If your first mortgage loan needs to be paid over a period of 30 years, the second mortgage loan or home equity loan has a much shorter repayment loan schedule of 5 or 10 years.
Before you jump into this kind of loan to pay off your credit card debt, you have to know the risks first. Be sure that what you are using it for has a good reason behind it because you can actually lose your house if you delay your payments and do not meet the deadline of when you should have finished the payment. If this is an option you want to pay off your consolidated credit card debts, be sure to look for legitimate debt consolidation agencies as there are lots of scammers who are waiting to deceive homeowners out of their houses.
Article by Nakagava Ltd., creator of PiggyBob™, the first truly user friendly personal finance and appointment scheduling software. PiggyBob™ is an extremely convenient tool to help you keep track of your income and expenses, plus a very useful printable calendar to record all important events in your life.
