Trying to pay various bills per month can take a lot of effort, not to mention worrying about racking up fees due to interest and dealing with the stress brought on by seeing bills pile up. Consolidating bills can give you the breathing space you need so you can focus on working to pay instead of worrying about paying on time.
One of the best ways to consolidate debt is to use a home equity loan because unlike transferring to a lower-interest card or getting a personal loan, using home equity to consolidate debt have fewer disadvantages. In this article the Toronto-based Home Equity Loan experts at Homebase Mortgages talk about the advantages and disadvantages of using home equity to consolidate your debts below.
Advantages of Using Home Equity to Pay Off Debt
Saving on interest is the most popular reason why people turn into using their home equity for debt consolidation. The savings are usually in the thousands of dollars per year on average. The lower fixed-rate interest of a home equity loan is also far easier to manage than trying to gain control over multiple loans. Another bonus is that the interest for a home equity loan is oftentimes tax-deductible because it is considered a second mortgage. On the other hand, if you choose to access your home equity via HELOC, you’ll have to make sure that you get a capped lifetime rate and that you make payments towards the principal to avoid fees as much as possible.
Fewer monthly payments is another popular reason for debt consolidation using home equity. It is near impossible to forget to pay when you only have to deal with a single bill instead of several.
Access to higher loan limits is one of the best advantages of using home equity for debt consolidation. If you try to consolidate debt by transferring to a lower-interest card, the limit will usually be low more so if your credit score isn’t speaking much for you; and the same goes for a personal loan. In using your home equity, you can access as much as 85% of it minus what you still owe in your mortgage. This amount can be in the hundreds of thousands, allowing you to take care of all your debts in one swift consolidation move.
Disadvantages of Using Home Equity to Pay Off Debt
“The main danger in using home equity to pay off debt lies in forgetting that it is also a loan that will have to be paid later”, says Michael Thompson at Mortgage Central Nationwide based in Toronto. It isn’t a long-term solution unless you take it upon yourself to learn to budget and address the factors that got you into debt, to begin with. Because using home equity for debt consolidation means taking out a loan with your home equity as collateral, failure to abide by the terms can result in you losing your home. The above are why you need to be sure that you get loan terms that you can handle, otherwise, you’ll be back in square one.
Are you thinking of consolidating debt using home equity? A home equity loan professional can help you get on the right track. Stop paying high fees and get back on track today.
You may also like: Top 12 Strategies to Get Out of Debt!
Image source: Depositphotos.com