To own a home is one of the biggest achievements that most people aspire towards. Here is when home equity comes into play. This is the difference between the present market value of any property and the remaining balance on the mortgage or loan you’ve secured against the property. You can use a home loan to leverage this equity further. This provides homeowners with access to more funds for miscellaneous purposes.
In my opinion, one of the best debt consolidation loan strategies is to use your home equity. If you own a home, this can be one of the most effective ways to consolidate it all at once. You might often get an annual percentage rate much lower than your credit card interest rate.
Here’s how it works:
When you use your home equity for a balance transfer account, you essentially borrow against the property as collateral. You can then follow an EMI to repay this debt. This is a secured loan, meaning you must put up collateral against the debt. In the case of home equity, this will be your property.
Let me help you further by stating a few benefits.
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It gives you a streamlined option for payoffs
The biggest advantage of a consolidated home loan is that you pay off all your outstanding debts through a single account. As several debts are rolled into a single account, all you need to do is pay one creditor from which you have taken on your consolidated debt. This is crucial for keeping your credit score high, as it lowers the chances of missed payments or defaults.
You get a lower interest rate
You get a lower annual percentage rate than your credit card interest whenever you take on a home equity consolidated loan. As you work to foreclose your previous debts, you only have to focus on a single balance transfer account instead of the multiple accounts you previously had.
However, this largely depends on your credit score. So, I would advise you to work to increase your score before you get a consolidated debt for your home equity.
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Increase your credit score
Taking on a new debt can dent your credit report, especially if you fail to be consistent with your repayments. However, paying off your consolidated loan promptly with regular EMI without any bounce or default can help increase your credit score. This is also aided by the fact that you cannot take any more loans during the tenure when you hold a consolidated debt. So, you’re less likely to fall into a cycle of debt.
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More affordable
Paying off a single debt is always easier than paying off multiple debts. Further, a home equity consolidated debt is likely to lower your EMI and monthly payment amount. Added to the fact that you pay a lower interest rate on a longer term, this is a far more affordable option. Streamlining your repayment process can help prevent oversights, defaults, and any penalties and interest hikes that occur as a result.
Parting Advice
With a consolidated home equity loan, you can pay off your medical bills, credit card bills, or any personal outstanding loans under the same head. So, choosing the best debt consolidation loan will be easier for you now.
However, I would say be sure to check for additional charges. At the same time, make sure that you know the fact that your house will be put up as collateral in case you cannot repay the debt in time. With that, I wish you well with your home ownership!