With the recession hitting hard these days, more people are considering using their homes to get out debt. Learning about home equity lines of credit is imperative if you choose to draw on the equity in your home. No matter if you’re going for a home equity loan or equity line of credit, each loan is the same as a second loan and is secured by your house. There are some home equity line of credit facts to make your selection a bit simpler.
The majority of home equity lines of credit have small or no closing costs. You simply have to pay interest only mortgage loan payments, that results in lesser monthly mortgage payments than if you have a fixed interest rate loan. Variable mortgage interest rates typically have a lot lower initial rates than with fixed interest rate loans. You may make use of the loan to withdraw only as you require the funds. You just pay interest on the capital that is used, not on the full loan total. You may utilize the remaining balance of the equity line as a rainy day source.
Variable mortgage interest rates aren’t firm and may go up more than a fixed interest rate loan. Monthly mortgage payments aren’t steady and can vary a lot. Nearly all home equity lines of credit entail annual fees paid to the lender. Because equity rates are going up fast, it is simple to use up all of your home equity. It is wise to make use of the equity in your house to get rid of debt, or pay off credit cards. However, utilize the funds sensibly and just take as modest equity as you feel you need to.
Optimistically, these home equity line loan tips should make selecting an equity loan simpler for you.
By: Robin Boddy
Posts Tagged Fixed Interest
The majority of Americans carry some sort of credit card debt. Unfortunately, many of us carry so much debt at such high interest rates that it becomes difficult to make a difference in the amount we owe, even when we send a payment to the credit card company each month. Falling behind just makes it worse, with late fees and finance charges added on to your next statement- and often a late payment will result in an increase in your interest rate. High interest rates quickly add up and result in our monthly credit card payments doing little or nothing to reduce the balance. It’s a vicious cycle that can be difficult to get out of.
One effective solution for getting off the credit card rollercoaster if you are currently a homeowner, may be to obtain a home equity loan and use it to pay off your high interest credit card debt. Homeowners often take home equity loans to make home improvements, figuring that the improvements will increase the value of their home and therefore make the loan worth it, but why not take a home equity loan to eliminate high interest debt and make it easier to pay your monthly expenses?
The Benefits of Refinancing Credit Cards with a Home Equity Loan
There are a number of benefits of credit card refinancing, with the most obvious one being the decrease in interest rates you are paying. The other primary benefit is the fact that you aren’t incurring more debt when you pay off your credit cards with a home equity loan – you’re keeping the amount you owe the same and moving the debt to a more affordable repayment method. If you had previously been struggling to make several individual payments every month, using a home equity loan to pay off your credit cards will result in a consolidation of your debt, making it easier to pay.
Additional benefits of refinancing credit cards with home equity include:
eliminating variable interest rates and getting a fixed interest rate
obtain a tax benefit with an interest rate tax write-off on home equity loan interest that could not be done with credit card interest
consolidate a number of monthly payments into a single, often lower, payment
easier record keeping, write and mail one check a month and make one transaction in the check register rather than multiple.
Disadvantages of Paying Off Credit Cards with Home Equity Loans
Like everything good in the world, there are also some disadvantages to using a home equity loan to pay off credit cards, that you’ll want to consider, though. For example, once you pay off the credit cards, you suddenly have lots of room on them to charge new purchases! This can be extremely tempting, and if you’re not disciplined, you could end up charging more debt and making your situation even worse (because now you have the home equity loan PLUS the additional high interest credit card debt!)
It’s a good idea to either get rid of the credit cards by cutting them up, or by placing them in a fire safe box in your home so that you aren’t tempted to pull them out of your wallet when you’re out shopping. Refinancing the credit card debt with a home equity loan can give you the opportunity to live credit card-debt free. Most financial advisors do not recommend calling to physically cancel the accounts right away, because reducing the amount of “available credit” will often have a negative impact on your credit score.
By: Debbie Dragon