Home Equity Loans Can Often Be Utilized To Consolidate Debt |

Homeowners who find themselves strapped with a great deal of debt may want to take advantage of getting a home equity loan if they could save themselves money in the long run. However, using a home equity loan as a way of consolidating their monthly payments into one is not always a viable option to reduce debt and lower payments. There are some essential points to consider before using such a home loan as a method of debt consolidation.

Assess Your Current Debt and Monthly Payments: To ensure that debt consolidation is a good financial move for you, find the payoff amount for each of the debts and add them up. This is the amount that would be needed to pay off all the combined debt with one home equity loan. Then calculate how much you pay each month for all of the various debts, but also calculate the length of time remaining on each of the debts because you need to understand how these debts compare with a home loan and the loan term, or length of time to pay it back.

Your Current Property Value vs. Amount of Equity in Your Home: You can check realtor postings of home sales in your neighborhood (if there have been recent sales) to get a better picture of the approximate value of your home in today’s market. If you do not have much equity in your home, it may be difficult to get another loan in addition to the loan in first position. If you have a sizeable equity in the home, the loan-to-value of your home should be acceptable to a lender and it would be possible to apply for a second loan.

Your Current Debt Load vs. a Home Equity Loan: Sometimes, even though you may get a lower interest rate on the home loan, the length of the term will negate any overall savings hoped for through such a transaction. You may be able to lower your monthly payments, but in the end you pay more to the lender because the term of the home loan is generally much longer than it was for the other debts. For example: a car loan is for 3, 4, or maybe 5 years. When compared to a home equity loan whose term is 10 or maybe 15 years, there is a negation of long term savings. However, if extending your payments and reducing the monthly obligation can help you through these difficult times, it may not be a bad financial move.

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