Home Equity Debt Consolidation Loan – Is It a Good Option?

It is not difficult to imagine why being debt-free gives a semblance of utopia to large number of people. Who in the world wants nagging calls from collectors, or watching interest skyrocket with every passing day or a blemished credit report proving to be more than a hindrance in almost any credit transaction?

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Debt consolidation using home equity is a rather open-ended topic and sways in implications between individuals. Read on to find out all that you need to know before making up your mind on home equity debt consolidation.

What is home equity?

Home equity is the worth of a house calculated by deducting any money outstanding against the home from the actual worth of the house as of today. Any kinds of loans or dues that are unpaid and are attached to the home are taken into account for computing home equity including mortgages and credits. This means that home equity decreases with increasing mortgages, or any other form of money accumulated by securing it using the home.

What is home equity debt consolidation?

Your home equity can be used to secure a loan and this loan is then used to consolidate and finally repay your debts. Once a lending institution approves your home equity debt consolidation loan, your unsecured debts are merged into one. You repay these debts by using the home equity debt consolidation loan and are left with a single loan to repay. This is done by making regular monthly payments over a period of time until the loan is final written off.

The advantage here is that you do away with all of your unsecured debts and end up having to make a single monthly payment. Apart from taking away the hassles of making multiple payments per month, you may save some money as home equity debt consolidation loans are offered at substantially lower rates of interest.

So far so good, but there are a couple of facts about home equity debt consolidation loans that you should be well versed with before going ahead with home equity debt consolidation. Here are some facts about home equity debt consolidation loans that need to be considered before planning debt consolidation using home equity:

1. Low interest loans: These loans are offered at rates that are lower than that for personal, or signature loans. Therefore when used for debt consolidation, a home equity loan helps save some money on your paybacks.

2. Tax savers: A home equity loan is accounted for in tax rebates and this way scores above personal or auto loans. The interest amount you pay up on a home equity loan can help you save some tax.

3. Secured loans: This is a very important feature of a home equity debt consolidation loan. Many people do not realize that home equity loans are secured against the equity of your home. Any delays or missed payments can lead to seizure of your home.

4. Lower the resale value: Taking up a loan against a home equity lowers the equity amount against your home. This means a lower selling value and consequent resale depreciation.

5. Variable/fixed rates: The home equity debt consolidation loans are offered at variable as well as fixed rate of interest. Make your choice after a careful analysis of the market scenario, as juggling between fixed and variable rates can be a tricky scenario.

6. Longer processing time: The approval of home equity debt consolidation loans requires stringent verification and assessment procedures. This locks in that extra bit of time that may be crucial while commencing debt consolidation measures.

Home equity debt consolidation has its advantages and disadvantages, and tags with itself certain risk factors that seem too ominous at the first go. However, a disciplined approach and a non-callous attitude is the order of the day when dealing with home equity debt consolidation. As long as you are aware of the way it works and the consequences of any of your actions, you should be able use to make good use of home equity debt consolidation.