If you want to consolidate your debt–and you own your own home–you’re in luck! If you’re willing to use your house as collateral, you have a lot of low-cost options for debt consolidation. Here are three loans to consider:
A 2nd mortgage is, essentially, another mortgage on a home that already carries a mortgage loan. The 2nd mortgage takes a backseat to the very first one, so it’s a bit riskier for lenders. Because of this extra risk, 2nd mortgages usually carry shorter terms and higher interest rates. However, you can use the money you borrow from a 2nd mortgage to consolidate your debt into one payment. And even however the interest rate is typically higher than your very first mortgage, it’s usually still lower than the average credit card or individual loan rate.
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Home Equity Loan
A home equity loan borrows a lump sum of money from the equity in your house–the value of your home minus the amount you presently owe on it. For example, if your house is valued at $250,000, and you presently owe $200,000 on your mortgage, you have $50,000 in equity that you can borrow. That means you can get a lump sum totaling $50,000, which you can then use to pay off other debts. In general, home equity loan rates tend to be low, and in many cases they are tax deductible.
Home Equity Line-of-Credit
A Home Equity Line Of Credit–also known as HELOC–is a type of revolving loan. Like a Home Equity Loan, you are borrowing from the equity in your home. However, unlike a Home Equity Loan, you don’t get a lump sum of cash. Instead, as a line of credit, you can draw on it any time for any amount (up to your limited maximum). HELOCs, in general, tend to have lower interest rates than Home Equity Loans.
Albeit borrowing a 2nd mortgage or using the equity in your home can be a ordinary and low-cost way to consolidate your debt, it’s significant to recall that, in all these cases, your home is the collateral for the loan. So before you borrow against your home, be certain you will be able to make your monthly payments.