Is It Smart to Use Home Equity to Pay Off Debts?
Home equity refers to the difference between principal loan balance and appraised property value. When real estate is worth more than loan balances equity can be used as collateral when taking out loans or lines of credit.
Home equity loans are often referred to as a second mortgage. When this type of financing is used, borrowers receive lump sum cash payment. Funds can be used to pay off credit cards, student loans, secured and unsecured loans, medical expenses, etc.
Home equity line of credit (HELOC) provides borrowers with a specific amount of money that they can borrow from whenever they want. HELOCs are similar to credit cards in that funds can be used over and over again, up to the credit limit. Banks only assess interest against borrowed amounts.
These types of loans can be a good option for financing major expenses. Some of the more common uses include making home improvements, paying off credit cards, and covering costs of college tuition.
People often turn to this finance strategy when debt loads exceed $10,000. Banks charge lower interest rates for home equity and HELOC loans. Borrowers can save upwards of 15-percent or more in interest by transferring debt to low interest loans.
Careful consideration should be given when using accrued equity to consolidate student loans. There are other financing options available that don't require using real estate as collateral. Graduates carrying federal student loans can research student loan consolidation options via the Department of Education website at ed.gov.
Graduates carrying privately financed student loans may qualify for consolidation loans through SallieMae.com. Most banks and credit unions offer education loan programs as well. A good source for individuals carrying federal and private college loans is StudentLoanConsolidator.com.
HELOC loans are usually a better option for those wanting to pay off unsecured loans or make home improvements. This option allows borrowers to pay interest-only payments for the first 10 years. Afterward, borrowers enter into a 'draw' period and are required to pay outstanding balances in full. Borrowers also have the option of paying monthly installments.
Borrowers should weigh the advantages and disadvantages of using home equity as collateral to secure financing. If borrowers encounter financial problems that prevent them from paying home equity loans they place their home at risk for foreclosure.
For most, real estate is the most valuable asset owned. Entering into loans using property as collateral can present serious consequences if borrowers default on their loan contract. A good source for obtaining trustworthy home loan information is the Federal Reserve Board website at FederalReserve.gov. Visitors can learn how to comparison shop lenders, compare payment options, and use mortgage calculators to determine the true costs of home equity and HELOC loans.
Home equity loans are often referred to as a second mortgage. When this type of financing is used, borrowers receive lump sum cash payment. Funds can be used to pay off credit cards, student loans, secured and unsecured loans, medical expenses, etc.
Home equity line of credit (HELOC) provides borrowers with a specific amount of money that they can borrow from whenever they want. HELOCs are similar to credit cards in that funds can be used over and over again, up to the credit limit. Banks only assess interest against borrowed amounts.
These types of loans can be a good option for financing major expenses. Some of the more common uses include making home improvements, paying off credit cards, and covering costs of college tuition.
People often turn to this finance strategy when debt loads exceed $10,000. Banks charge lower interest rates for home equity and HELOC loans. Borrowers can save upwards of 15-percent or more in interest by transferring debt to low interest loans.
Careful consideration should be given when using accrued equity to consolidate student loans. There are other financing options available that don't require using real estate as collateral. Graduates carrying federal student loans can research student loan consolidation options via the Department of Education website at ed.gov.
Graduates carrying privately financed student loans may qualify for consolidation loans through SallieMae.com. Most banks and credit unions offer education loan programs as well. A good source for individuals carrying federal and private college loans is StudentLoanConsolidator.com.
HELOC loans are usually a better option for those wanting to pay off unsecured loans or make home improvements. This option allows borrowers to pay interest-only payments for the first 10 years. Afterward, borrowers enter into a 'draw' period and are required to pay outstanding balances in full. Borrowers also have the option of paying monthly installments.
Borrowers should weigh the advantages and disadvantages of using home equity as collateral to secure financing. If borrowers encounter financial problems that prevent them from paying home equity loans they place their home at risk for foreclosure.
For most, real estate is the most valuable asset owned. Entering into loans using property as collateral can present serious consequences if borrowers default on their loan contract. A good source for obtaining trustworthy home loan information is the Federal Reserve Board website at FederalReserve.gov. Visitors can learn how to comparison shop lenders, compare payment options, and use mortgage calculators to determine the true costs of home equity and HELOC loans.
