Much like the toll it takes on the planet, polluting your finances with the excessive use of plastic can be detrimental to your fiscal well being. While it’s limited use may be beneficial, uncontrolled usage could burn a hole in your pocket, savings and credit score!
If you are in the process of paying off an existing mortgage, the added stress of unpaid credit card bills could be even higher. If you find yourself overwhelmed by credit card debt and mortgage payments home equity loans maybe an option to consider because herein, the solution lies within the problem!
What is a home equity loan?
In its simplest form,
Home equity loan = (Appraised Value of your home) – (Balance amount that has to be paid on your primary mortgage)
For example, if your home is valued at $500,000, and the balance on your mortgage payments is $400,000, you have built an equity of $100,000. This $100,000 can be used to secure a second mortgage to pay off debt generated through credit cards, bank advances and pay day loans.
Typically, financial institutions will grant 70- 80% of this equity as loan amount. So, here the second loan maybe for an amount of $80,000.
Home Equity Loans vs Monthly Credit Card Payments
This second mortgage through the process of refinancing, is usually available at a much lower interest rate than the interest paid towards credit cards, therefore by paying off your credit card company in a single payment you are left with a loan spread over a longer duration and smaller monthly payments.
Additionally, the advantages of debt consolidation through home equity are:
- Increased cash flow: As mentioned earlier, a debt with a lower interest rate than your credit card will increase liquidity within your current income.
- Customized Financial plan: Your mortgage professional will help draw out a repayment plan that will be spread over a term of 2-5 years keeping in mind your financial goals and ability to repay the debt.
- Streamlined payments: Multiple monthly payments will now be downsized into a single monthly payment that will aid in your process of financial planning
- Credit Score: If you have a poor credit score, with the high interest sources paid off, you can now work on building your credit score, as this is a factor that is instrumental in taking on a mortgage or renting a property.
- Principal Repayment: When paying off credit card debt from your existing income, the minimum payments often only pay the interest but the root cause, which is the original sum borrowed, is still a mile away from repayment.
Banks Vs Private Lenders
Secured financial institutions and private money lenders, both offer debt consolidation loans against home equity. Owning a home being the primary factor, other factors determining your eligibility good credit score, net worth, monthly income after deducting expenses and that can be used as collateral.
The only drawback in this situation for a consumer considering a home equity loan through banks would be that these secured financial institutions have very strict guidelines for qualifying, while a private financial institution is likely to be more flexible with the above guidelines and though the interest rate offered may be higher than the bank, it is still lesser than the interest paid on credit cards, making it a viable option.
Often, individuals are averse to borrowing from a private lender, however as banks have to adhere to stringent regulations, which aren’t very favorable for a consumer with high interest debt, private financial institution present the likelihood of qualifying for refinancing with a poor credit score. They provide the opportunity to experience financial freedom from credit cards and save you from sinking into the circle of debt.
How can we help?
With Interest rates starting as low as 6.99% and up to 90% of the equity being granted in a loan amount, we kick start your journey of getting debt free. Combining this with a simple application process, same day approvals and money to you within 48 hours we help you reach your goals faster and contribute towards bringing you financial stability.
Is there a disadvantage to home equity loans?
While home equity loans may promise a better financial future, it is necessary to understand that this is only the first step towards securing a stronger fiscal ground.
Following a meticulous financial diet is imperative to avoid getting caught in the web of debt and interest payments.
Consulting a mortgage professional, will help with understanding if debt consolidation through home equity loans is the best suited option for your requirements and gaining a deeper insight into the above process. Borrowing from one source, to pay off another may seem daunting at first, but this procedure may be a long term fix to your short term debt!
Call us today on 416 674 6222 for a consultation on managing your debts!