When you are struggling to make the minimum payments on your credit cards or personal loans, but own your own home, you are sitting on an unused debt solution that can save you both stress and money. Using your home to finance your debt is likely the most affordable way that you can consolidate and put a term of time on when you will be debt free.
Depending on your equity, you can use your home to consolidate debt even if you have bad credit. If you have more than 50% equity, you may be able to get a loan that doesn’t even get registered against your home as a mortgage. Using what you already have at your disposal – your home – is a great way to finance your debt without harming your credit.
The key to home equity loan financing is how you term your loan.
For example, taking out a second mortgage and amortizing it out over 25 years is never a good idea – especially when you have control over what your amortization will be. Like a first mortgage, a second mortgage has a term and an amortization period. You can match your term to your amortization and the effect is that your second mortgage is paid off as it would have been if you took out a conventional personal loan.
Let’s look at an example:
A second mortgage loan of $20,000 at 13% interest, with a 5 year term and 5 year amortization period, would bear a payment of less than $450 per month. That’s not so bad, is it. Even better, that debt is paid off completely at the end of the 5 years.
Second mortgages are also good because they have nothing to do with your first mortgage. There is really no point in breaking open a low rate first mortgage to refinance a small amount of debt – especially considering that it will result in the debt being blended in with your mortgage and stretched out over 25 years – meaning way more interest paid in the long run.
Equity is power – the more equity you have in your home, the more power you have. Additionally, if you have a lot of equity, you may not even need to have a second mortgage registered which is appealing because you can avoid an appraisal.
Want to find out more about home equity financing and using your home to finance your debt?
Call Prudent Financial today at 1-888-852-7647.