Home Equity Loans – Wise for Debt Management?

Home Equity Loans - Wise for Debt Management?

Yes. Home equity loans are an excellent way of helping you to keep control of your debts.

If you have a number of personal loans or credit cards then you could be facing three problems. Firstly, you could be paying high rates of interest on these borrowings. It is not unusual to pay over 15 or 20 per cent interest on some credit cards whilst personal loan rates are often in excess of 10 – 12 per cent.

Secondly, you may be struggling to meet your monthly repayments as each of your minimum loan or card repayments may be quite high. And, finally, you may be finding it hard to keep track of all your debts if you have to make lots of small payments to multiple creditors every month. Managing your finances can be tricky if you have a lot of different debts.

A home equity loan allows you to borrow some or all of the equity in your home. Depending on your income and equity you can typically borrow between £3,000 and over £100,000 over a term of 3 to 25 years. The lender takes a legal ‘charge’ over your home as security for the homeowner loan.

As the home equity loan is secured, there is a strong likelihood that the lender will get their money back – either through your repayments or by repossessing and selling your home if you don’t pay. So, they can afford to agree to a home equity loan at a lower interest rate than other types of borrowing. This means that they can be ideal for consolidating other debts such as overdrafts, store cards, personal loans or credit cards.

You can raise a lump sum through a home equity loan, which you can use to repay all of your other debts. You are left with one affordable, simple monthly repayment every month. You don’t have to worry about multiple creditors and you will often find that your monthly outgoings reduce significantly.

When considering a home equity loan, remember that you will be securing previously unsecured debt. If you don’t pay personal loans or credit cards, the lender has no assets they can seize to recoup their money. They can take you to court and you may have a poor credit rating. However, with a home equity loan, a lender has your property as security. This means that your home is at risk if you don’t keep up repayments on your home equity loan.

To access the money tied in your home equity and get a great loan rate, book an appointment with the Mortgage Genie.

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