Has credit card and other high-interest debt slowly been creeping up on you? If so, it may be a good idea to look into borrowing against the equity in your home to pay down that bothersome high-interest debt. Fixed Home Equity Loans can be a great cost-saving option for paying down higher-interest debt. If you have enough equity built in your home, it may be the right solution for you. Your home’s equity is the current value minus your mortgage and any other liens. Home Equity Loans can provide you with a lump sum of money at a fixed interest rate to pay off debt. You may have thought that Home Equity Loans were just for home improvement and other home-related projects. That’s not the case, as you can pretty much use them to finance any need.
5 pros of using Home Equity Loans to consolidate debt
1. Home Equity Loans can provide a lower-interest solution to paying down debt
Because your home is used as collateral for the loan, a Home Equity Loan often provides a very competitive interest rate for those looking to pay down high-interest credit cards and other high-interest debt. A Home Equity Loan also enables you to lock in a fixed interest rate, so there are never any surprises.
2. A Home Equity Loan can help you save money when consolidating debt
You may find the lower fixed-interest rate of the Home Equity Loan is saving you a fortune in interest as compared to a much higher-interest credit card. This will enable you to pay off your debt faster and save on interest.
3. Consolidating debt with a Home Equity Loan can provide you with one, easier to manage monthly payment
If you find yourself struggling with several payments for different credit cards and loans each month, you’re not alone. Many of us are in that same boat. It can be challenging to say the least. Simplifying and consolidating to one monthly, pre-set payment can help you better organize and avoid missing payments.
4. If you have enough equity built in your home, you may be eligible for a higher loan limit
Part of the problem with consolidating and paying off debt is that you may not have been eligible for a loan that provided a high enough limit to consolidate all of your high-interest debt. A Home Equity Loan is based on the equity in your home. So, if the equity is there, your loan limit may be high enough to cover your debt. Depending on the particular credit union or lender, you may be able to borrow between 80% and 90% of your home’s equity. At Benchmark Federal Credit Union, we actually allow eligible qualified members with good credit to borrow up to 90% of the appraised value of their home.
5. The end is in sight with a Home Equity Loan
With credit card debt, you may feel like you will never see that zero balance you’re longing for. You pay your balances down a bit and then charge right back up again. If you can commit to refraining from incurring more debt while you pay off your existing debt, you will eventually find yourself in that debt-free state you desire. With a Home Equity Loan, you are borrowing for a specific period of time with set repayment terms. Whether it’s a 3-year, 5-year, or 10-year term, you’ll know the exact date the loan will be completely repaid. Remember, the shorter the term, the faster you will be debt-free.
Applying for Home Equity Loans
You need to be a homeowner with a certain percentage of equity built up in your home to qualify for a Home Equity Loan. You will also need a good credit history, proof of income, and a good debt to income ratio. When searching for the right Home Equity Loan, always start with your local credit union. Benchmark Federal Credit Union offers members competitive, fixed Home Equity Loan rates for debt consolidation and other needs. Best of all, we provide friendly, personalized service and a local decision-making process.
When considering a Home Equity Loan for debt consolidation, it’s always important to remember that your house is used as collateral for the loan. If you miss loan payments, you put your home in jeopardy. A lender can foreclose on your home. It’s a big commitment and you want to be sure you are up to the task.
Learn more about Home Equity Loans and other loans by reading through our Benchmark blog articles.