If you have credit card debt, you are not alone. You are like the other homeowners and borrowers who make up for the $1 Trillion in consumer debt thats been wracked up and its nothing to be ashamed about. In this day and age, it costs a lot to just live!
A lot of homeowners are tapping in to their equity to solve their high interest debt problem, but is it right for you? In this post, I will go over a few questions for you to ask yourself and if the answers help you, you will know if this is the right move for you. ( because its not for everyone)
Question 1:
How much debt do you have?
If you have about $500-$10,000 a HELOC or a HELOAN wouldn’t be a good option for you. The minimum amount you can borrow against your home is going to be around $20,000-$25,000. If you have between $500-$10,000 in debt with high interest, you should look into a personal loan that may be at a lower interest or a balance transfer to new card with lower interest rates
Question 2:
Do you have bad credit?
If you have a lower than 640 FICO, a HELOAN/ HELOC will not be an option for you. These types of loans require a slightly higher credit score. And, like everything else in the borrowing game- your credit score effects your interest rate. If you do have a higher FICO, this may be a way for you to take advantage of a lower interest rate consolidating all your debts to 1 low monthly payment
Question 3:
Do you pay your payments on time?
If you are good at making on-time payments, a HELOC/HELOAN would be a good option for you. The reason I bring this up is because once you consolidate all your debts and secure them in the Line of Credit, this is secured against your asset, your property. You do not want to make late payments on a line of credit or mortgage thats secured by your home. This will have a HUGE impact on your credit and your approval odds in the future if you miss payments or have late payments. If you are fiscally responsible and have a history of on-time payments, a HELOC/HELOAN may be an option for you.
Question 4:
Is it going to increase the amount of interest paid back over time?
Get with a mortgage professional and run the numbers of how much its going to cost you to borrow that money and how long it will take you to pay it back. You want to make sure you are LOWERING your blended interest rate and reaping the benefits of having a HELOC/ HELOAN.
Question 5:
What are the terms of a HELOC/ HELOAN?
The main differences between a HELOC and a HELOAN:
HELOAN: Fixed rate and a set term ( 10,15,20,30 yr) and the payment has principal and interest amortizing. You receive one lump sum at the end and the payment stays the same for the duration of the chosen term. This is good for debt consolidation or home improvements
HELOC: adjustable rate and has a set draw period( usually 3 or 10 years) In that draw period, you are allowed to borrow and pay down as much as you want as long as you are making the minimum payment. You will only pay on what is borrowed. After your set draw period, your loan will amortize to a 27 or 20 year term with both principal and interest which could be a payment shock. This is a better option to have for emergencies and use it like a credit card secured against your home
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