Home Equity Loans for Consolidation

What is a Home Equity Loan?

Home equity loans are available to homeowners who have either paid off their mortgage completely or sufficiently enough to have built up equity in their home. Equity is a term that basically means you owe less on your home than it is worth. For example, if you buy a $100,000 home with $10,000 down and pay the mortgage for several years, to where your balance owed is now $85,000; assuming your home is still worth the $100,000 you paid for it, you have $15,000 in equity in your home.

Getting a home equity loan or line of credit is a bank offering you money that acts as a second mortgage on your home. Known as HELOC (home equity line of credit), this agreement between you and the bank is kind of a misnomer, because even though the bank is only offering you about the same amount of money that you have as equity on the loan, if you default on your loan, they are still capable of taking your entire home away from you. Learn what debt management services really are here.

The Advantages of a Home Equity Loan

Convenient backing: Unlike an unsecured loan for consolidating your debt, a home equity line of credit usually comes with a much greater range of money available than your credit (probably already damaged by late payments or charge-offs).

Revolving credit: Some banks offer home equity lines of credit in a revolving sense, which means that as long as your mortgage and loan payments are in good standing and your house retains its value, you may continue borrowing against the equity in your home for as long as you want to.

The Disadvantages

The Risk: Home equity lines of credit are as serious (to the bank) as your mortgage on the house. That being the case, the consequences for non-payment are as serious as if you stopped payment on your mortgage and can lead to foreclosure and loss of your home.

Reduced Credit: Like any other debt, taking out a HELOC will appear on your credit rating as another debt which reduces your ability to get credit in other ways that you might need in the future until it is completely paid off.