What is a
home equity loan?
A home equity loan is a type of loan in which the
borrower uses the equity (the excess of the market
value of the house) as collateral. A home equity
loan is usually used to finance other projects such
as home improvement, buying another home, college
education or major medical bills. A home equity
loan creates a lien against the borrower's house.
Home equity loans are made to homeowners and are
secured by a mortgage on the property. .
Debt Consolidation Vs Refinancing &
Home Equity Loan
The goal of debt consolidation is to help reduce
your monthly bills and lower your interest rates.
Mortgage refinancing and home equity loans can also
help pay off your existing accounts. Overall, the
best choice depends on your current mortgage terms.
Refinancing your existing mortgage if you presently
have a low rate mortgage is not advisable. A home
equity loan allows you to use your equity without
affecting your current mortgage rate. Home equity
loans (known also as second mortgages) typically
have higher rates than if you refinance your mortgage.
Debt Consolidation Home Equity Loans
Getting a home equity loan, or second mortgage,
for the purpose of consolidating and ultimately
eliminating unnecessary debts is a great plan. Having
a home with equity is also a major advantage. You
can acquire home equity loan as a way to reduce
debts. These loans are affordable, and serve a useful
purpose. You can combine some of your creditcard
balances, auto loans and personal loans into an
home equity loan.
How Do Home Equity Debt Consolidation Loans
Work?
A home equity is the excess of the market value
of the house. Home equity loans are approved based
on your home’s equity. A home’s equity
is the difference between amount owed and the home’s
fair market value. For example, if your current
outstanding mortgage balance is $150,000 on a home
worth $225,000, the equity of your home equals $75,000.
Once a home equity loan is approved, the funds
are used to payoff creditors. Creditors may include
high interest credit card balances, consumer loans,
automobile loans, student loans, etc. Furthermore,
debt consolidation can used to payoff past due utility
bills and medical bills.
Debt consolidation loans have to be repaid within
a reasonable timeframe. On average, home equity
loans have short terms of 5 to 15 years. Home equity
loans are easier to pay off because of fixed and
lower rates.
|
