Getting home equity loans to pay off high-interest credit card debt can be a very wise move if you do it right. Borrowers who don’t know how to spend their money wisely may end up losing their house when they are no longer able to make repayments. So, if you’re planning to pull equity out of your homes to pay off your outstanding debts, here are things to keep in mind:
Minimise Credit Card Use
Using the proceeds of your home-equity loans on credit-card debts can quickly backfire if you keep using your credit card. While credit card minimum payments are due within a short period of time, home-equity loans are normally amortized up to 15 years. So, imagine if you maxed out your high-interest credit cards and used the proceeds of your home equity loans to pay it off, you’ll be paying for that amount for a decade or more. Worse, if despite your outstanding second mortgage you still use your credit cards, max it out and miss the due dates.
Choosing a Fixed Interest Rate
As a second mortgage, home equity loans allow you to receive a lump sum of money that you can use to pay your debts. Instead of paying every month at varying rates, you simply pay your home equity loan in monthly instalments over a specified period of time. Unlike credit cards with a varying interest rate, your second mortgage will have a fixed interest rate.
Home equity loans usually have fixed interest rates. What would happen if you decide to pay off your loan early? Well, you may have to pay for the pre-payment penalty. So, in case you decide to get rid of the monthly payment or if you already want to move out of your home and sell it, you have a choice. Anyway, the pre-termination fee may not cost a lot, depending on the terms and conditions of your second mortgage. That’s why it is highly important for you to discuss the pre-termination fees and similar terms with the lender before getting home equity loans.
Having a fixed interest can also work on your favour. If you use the proceeds of the loan to pay your credit card debt and use the remaining amount to start a business or invest in high yielding stocks, you would be earning more than the interest of the second mortgage.
Following underwriting guidelines on proper debt and income levels is a must.
Don’t Overstate Your Income
Never overstate your income, even if some loan officers tell you to do so. Remember that underwriting guidelines are there to ensure that you will only take out a loan that you can afford.
AT NSW Mortgage Corp, we can help you get the home equity loan amount you qualify for. We will ensure that the conditions will allow you to successfully pay off your credit card debts and pay for other expenses. We will help you come up with a payment plan to ensure that you can meet your monthly payments.
We Get You The Most Suitable Loan
If during the loan process you realised that you cannot afford the home equity loan payments, immediately discuss it with us and we will assist you in getting the most suitable terms available. We are here to listen to you until you get the right loan products for your needs.
Learn more about home equity loans by talking to us today!