Consolidating Credit Card Debt
with a Home Equity Loan |
By Natalie Aranda |
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A Home Equity Loan is a type of revolving line of credit or loan
based on the equity in the mortgager's property. The property is the
collateral for the loan, and it can be usable for any purpose,
although most of the time it is used to consolidate credit card debt
in order to obtain debt relief. This is made by allowing the
mortgager to borrow against the equity of the property, up to 100
percent.
There are two different types of home equity loans
commonly used for debt consolidation: the standard home equity loan,
and the equity line of credit. A Standard home equity loan is
usually referred to as a second mortgage installment loan, a term
loan, or a closed-end loan. As occurs with credit card debt,
borrower and lender arrange a payment agreement.
Standard
home equity loans grant an amount of money loaned in a lump sum for
a particular time, and guaranteed by your home. Debt relief is
achieved by lowering the interest rate after consolidating your
credit card debt, considering the fact that the home equity line of
credit taken to replace funds up to a maximum amount, may go as high
as 125 percent of the appraised value of your property.
Understanding your credit card debt allows you to pay into your
properly built-up equity. Such equity is the value resulting from
the difference between the amount your property could be sold for,
and the amount that you still owe to the lender. Additionally, when
your debt runs up without knowing exactly how, a home equity loan is
also handy for debt relief.
In fact, many people discover
that their credit card debt is out of control when they get their
monthly bank statement. Common purchases, payment of services and
occasionally getaways or dining out can bring your balance
over-the-limit fees. However, debt consolidation may save the
situation by rolling that debt into a home equity loan.
Consolidation is easier when you are planning to refinance your
first mortgage, and the prime rate is below the average rate charged
on the typical 30-year fixed mortgages. Debt relief by tapping your
home equity is usually cheaper than get a home equity line of
credit, and cost thousands of dollars less in closing costs.
Furthermore, debt consolidation with a home equity loan has the
additional benefit of the rates and alleviating your credit card
debt. Because interest and fees on these loans are generally lower
than any first mortgage, and a Home Equity loan is the right
solution for you when you are not able to find debt relief affording
a 5-year or 10-year repayment loan schedule. |
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