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Using a Home Equity Loan for Debt Consolidation

Using a Home Equity Loan for Debt Consolidation

For many of us, our home is our most valuable asset. Once you start to build up equity in your house, you can tap into it when you need some cash for a home improvement project, a large purchase or even debt consolidation. Yes, you heard right; debt consolidation! In fact, consolidating high-interest debt with a low-interest home equity loan can make a lot of sense when trying to improve your financial situation.

A big pro of debt consolidation with a home equity loan is that the interest rate on a home equity loan is usually much lower than your typical credit card. Another is the fixed rate, which can help you secure a budget-friendly payment that is consistent throughout the life of your loan. A word of caution when pondering this method of debt consolidation, however. Home equity loans are a type of second mortgage based on the value of your home, minus any other, outstanding liens. You must remember that when you borrow against the equity in your home, you risk losing your home if you don’t make the payments.

When searching for a home equity loan to consolidate debt, it’s important to find a payment plan that you know you can afford. Be aware of all of fees, such as an application fee, appraisal fee, and closing costs. You want to compare apples to apples and bear in mind, that the lowest rate doesn’t always mean the best deal! When you’re shopping for a low rate home equity loan, it’s best to “think small for big.” In other words, think locally. Choice One Community Credit Union offers our members great low home equity loan rates and an easy application process. So, take a gander and let’s get you on the path to being debt-free today!

Six Pros of Debt Consolidation With a Home Equity Loan:

  1. Low, fixed interest rate. Consolidating high-interest debt saves you interest!
  2. Flexible terms made for any budget.
  3. One predictable monthly payment. No more juggling!
  4. Know your payoff date. Nuff said.
  5. No temptation of a revolving credit line means no overspending and running up more debt!
  6. Qualifying is pretty simple if you have the equity and can demonstrate the ability to make payments.

Home Equity Loan vs. Higher Interest Credit Cards: How Much Can You Actually Save?

Well, let’s crunch the numbers, shall we? If you have $25,000 in credit card debt and the average interest rate on your credit cards is 15%, you may be paying approximately $403.34/ month over 120 months. You will pay back 25,000 in principal and a whopping $23,400.49 in interest over that ten-year period! Not good.

If you have enough equity in your home to borrow $25,000, then a home equity loan at a much lower interest rate of say, 3.99% for a 120-month term, would set your monthly payments at $252.99 and you will pay back your $25,000 in principal and only $5,359.29 in interest. That’s a big difference in interest paid over the same time frame!

If you could afford a higher payment, you can go for a lower term, paying the loan off faster and saving even more on interest!

Can You Tap into the Equity in Your Home?

Do you have enough equity in your home? That’s the determining factor! Equity is the amount your house is worth (appraised value) minus your remaining mortgage total and any other liens against the property. Lenders will usually be open to lending you up to 85% the equity in a home based on your credit history and income. This type of loan enables you to convert your home’s equity into cash. Whether it’s paying down credit card balances, paying off high-interest student loans, high medical bills, financing home remodel projects or any, other large expense, a home equity loan can be your new best friend.

It’s interesting to imagine that the roof over your head may be able to stop that debt-filled financial roof from caving in on you! If you need help consolidating, Choice One has a great home equity promo. Want to speak to someone in person? Our loan officers are available at any of our three, conveniently-located branches so stop by today!

Not yet a member, check us out online to learn more.

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