Home Equity Loan for A Debt Consolidation

Home equity loans are bank articles that are lent by the bank, finance companies or sub-prime lenders against the portion of your home which you still own after taking on a mortgage. For instance, if the bank evaluates your residence and it’s worth $500,000 and a $45,000 mortgage, the bank takes the share of your residence (called equity) to $50,000. Home equity loans also refer to a “refinancing a mortgage” and “getting a second mortgage”. If you are considering debt consolidation by York Credit, you may use your home equity loan to clear your smaller debts. It offers you unparalleled security as you will have to make only one monthly repayment.

Applicable Interest Rates on Home Equity Loan

For the second mortgage, certain banks and other mortgage lenders can give the same interest rate as you obtained on the initial mortgage. The argument is usually that the factors considered didn’t change when you got the first mortgage. But, most of the lenders don’t do the same thing. You may be forced to give a higher interest rate on your second and following mortgage.

Make sure the dates of the first and second mortgage corresponds when you have to pay a higher rate of interest. Thus, when the renewal period comes, you can combine them at the best possible interest rate from the bank.

Pros

• You can negotiate a flexible repayment plan, but it may be difficult to consolidate with other smaller loans.
• Banks usually offer very low-interest rates.
• Once your home equity loan is approved, you will be able to immediately access the cash and repay high-interest debt including credit card debt.
• You are not restricted to what you can use the money for, you can even use it for home repair, bill payment and even go on holidays.
• Bad debt payment will help in maintaining your credit score.
• You can avoid bankruptcy filings since the lender will get your equity in the home when you cannot make a repayment (your equity acts as collateral).

Cons

• The present rates between 2% and 5% are contemporary. However, it doesn’t mean that it will go down more. Home equity loans’ interest rates may go up at any time. 
• Your eligibility depends on your equity.
• Most banks have multiple charges for establishing a second mortgage. 
• Most banks do not provide small second mortgages (the minimum limit is $10,000).