Many people have incurred debt over the past two years with the downturn in the economy and rising unemployment. Despite record low interest rates for mortgages, other forms of credit like credit cards, revolving credit and car loans are still at high rates. A home equity loan mortgage can make good financial sense if you have equity in your home. You can refinance or borrow against that equity to save thousands of dollars in interest, since this type of secured loan can be financed at lower rates.
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Many options are available to reduce your debt burden and increase your cash flow. If you are currently making many different payments to lenders: store cards, credit cards, loans, cash advances, etc. you can consolidate all of those debts into one monthly payment. This consolidated payment is usually much lower than the total minimum payments for all debts. If you are having trouble making ends meet, the lower payment may mean you can avoid going further into debt by using credit to get through the month. As your income or cash flow situation improves, you can make accelerated or additional payments towards your home equity loan to pay it down faster.
It may make sense to refinance your mortgage at today's low interest rates, increasing the amount of the mortgage to pay off your other high interest debts. You will pay less interest and have a smaller monthly payment than servicing all debts, but you will have the mortgage for a longer period of time.
You can also choose to get a home equity loan or line of credit that is secured by the equity in your home. The rate of interest on a home equity loan is much lower than an unsecured loan. The advantage to this type of loan is you can usually pay it off sooner, and increase payments as your cash flow improves. The object is to pay the line of credit down, not to leave it run up at the maximum amount. People that do not pay down their lines of credit may be better off with an increased mortgage payment, since it forces you to be more discipline in paying down debt.
Using the money in your home can make good financial sense, as long as you avoid incurring additional debt in the future. You need to be disciplined and pay off your loans and not look at refinancing as a way to afford a more lavish lifestyle. It is also a good idea to keep some money or lines of credit open in reserve for emergencies.
An accredited mortgage broker can help you understand your options for a home equity loan mortgage, and help you find the best financing solutions for your needs.
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