Home Equity Loans
A home equity loan and a debt consolidation loan are often synonymous. A debt consolidation loan is a loan you can borrow and use to repay other loans. A home equity loan is the same thing, except that it explicitly means you are borrowing against your home, and not some other asset.
Home equity loans convert your unsecured debt to secured debt by using your home as collateral. These loans are a legitimate way to eliminate your credit card debt – but only if you’re willing to risk losing your home if you can’t make the payments.
A home equity loan lets you transfer your unsecured debt into secured debt and consolidate your payments. Home equity loans work by letting you borrow against the equity you have already earned. This should generally be a debt relief option to pursue when you can afford to repay the loan and understand that you could lose your home if you default on the loan.
To qualify for a home equity loan (also referred to as a second mortgage) you typically need to have equity in your home, a good credit score and the ability to repay the loan.
Home equity loans can be worth the value of your home, but some loans will only let you borrow a percentage of the value depending on the lender, state laws, and the status of your credit. A home equity loan reduces the future equity available in your property. Remember with this option, you are exchanging your unsecured debts for a secured debt.
Most home equity loans will involve fees, though most will differ depending on your lender. You could face appraisal fees, title fees, closing fee, a penalty for early payoff and other charges.
Some debtors like this option because there is only one monthly payment and often at a slightly lower interest rate. However, the ability to make one monthly payment can also be found in other debt relief options that don’t convert unsecured debt into secured debt, including debt settlement programs, chapter 13 bankruptcy, some debt management plans and consumer credit counseling programs.
