Home Equity Loan to Consolidate Debt
It can be difficult to get ahead when you’re trying to pay off high-interest debt on credit cards, auto loans, and other consumer debt. If you’re a property owner though, you’re in a unique position to borrow against the equity you’ve built up in your home and manage that debt.
Home equity is the difference between the value of the property and the unpaid balance on the mortgage. A home equity’s increase every time you make a mortgage payment and as the value of the property rises.
Consolidating debt with a secured loan that is backed by the equity in your property, like a home equity loan and/or home equity line of credit (HELOC), gives you access to a much lower interest rate than what you would find with a conventional loan or revolving credit (credit cards).
Two of the most popular ways for homeowners with more than 20% equity in their home to consolidate debt is through a HELOC or home equity loan. A HELOC is a revolving line of credit with an adjustable interest rate that lets you tap 65% on the value of your home. Because it is a line of credit, you do not get all the money at once. Instead, you access as much or as little whenever you need it.
A home equity loan on the other hand is a little different than a HELOC. A home equity loan is similar to a primary mortgage; you receive a one-time lump-sum that is paid backed over a fixed period of time, usually at a fixed interest rate. Once you get the home equity loan, you have to start paying interest on the entire amount.
With a home equity loan, which is also often referred to as a second mortgage, you can borrow up to 80% of the appraised value of the home (minus the balance of the outstanding balance on the primary mortgage).
Using a home equity loan or HELOC to pay down debt can help save money, increase monthly cash flow, and streamline the debt process. Consolidating debt with a home equity loan or HELOC also makes it easier to pay down your debt because you’re now dealing with just one low interest monthly payment. This also frees us extra money each month.
Getting appraised for a home equity loan and HELOC is not very difficult. That’s because the loans are secured against your home.
Advantages of Using a Home Equity Loan to Consolidate Debt
There are many advantages to getting a home equity loan to pay off debt:
- Get immediate access to cash to pay off high interest debt
- Can be used for emergency bills, vacation, home renovation, or anything else you like
- Consolidating debt with a home equity loan will lower monthly bill payments
- Paying off debts will help improve your credit score
- A home equity loan can be spread out over the lifespan of the mortgage
- It’s an excellent option for those with bad credit or a previous bankruptcy
Using Home Equity to Pay Off Credit Card Debt
Interest rates on mortgages are near record lows and are forecast to remain near these levels for quite some time. This has helped keep the interest rate on a home equity line of credit to just over five percent. Compare this to credit cards that can have interest rates in excess of 30%. That’s why home equity loans are so popular with property owners saddled with high interest debt.
Calculate Your Total Debt
While credit card debt and interest payments can be the biggest portion of debt, most people have more than one type of debt. If you’re looking to consolidate debt through a home equity loan, add up the total amount of debt you have; this will include everything like credit cards, student loans, car loans, etc.
How Much Equity Do You Have?
How much equity do you have built up in your property? A mortgage statement will show you how much you have paid down (equity) and how much you have left to pay. It’s also a good idea to see how much your home was appraised for. Thanks to the strong housing market in the GTA, chances are good that you have more equity built up in your property than you think. A lender will most likely want to reappraise the property to determine the current value.
Which Option Is Right for You?
There’s more than just one way to tap the equity in your home. Which one best suits both your financial and lifestyle needs: a home equity line of credit or a home equity loan? Both of these financial tools will help you consolidate your debt and pay them off. But it’s up to you to decide which option is best: a lump sum with a fixed interest rate or a revolving line of credit with a variable interest rate.
Pay Off Your Debts
Once you’ve been approved for a home equity loan or HELOC, you can use it to pay off all your debts! Going forward, it’s important not to take on even more debt because you still have the initial credit card debt to pay off—it’s just been shuffled to a low interest rate option.
Canadalend.com: Helping Canadians Consolidate Debt
If you have high-interest debt and are thinking of consolidating with a home equity loan or HELOC in the GTA, let the mortgage professionals at Canadalend.com help. It might not be difficult to find a lender willing to give you a home equity loan, but the rates and conditions will vary.
The licensed independent agents at Canadalend.com have access to hundreds of different lenders. Some even specialize in helping homeowners that have bruised credit, have been through a bankruptcy, have unreliable income, are self-employed, etc.
We’ll evaluate your current financial situation and help you come up with a debt consolidation plan that meets your financial and lifestyle needs and help you find the right lender.
To find out what your debt consolidation options are, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.