What To Know About Home Equity Loans For Debt Consolidation
Author:
Kevin GrahamOct 15, 2024
•7-minute read
Are you in debt and needing to find a way to simplify your payments? A home equity loan for debt consolidation could be the answer. You can borrow on your home’s equity to pay off bills and revolving debts such as credit cards and non-mortgage loans. But what are the pros and cons of using a home equity loan to pay off debt, and are other solutions worthy of equal consideration?
Before you make any decisions about your home equity and debt consolidation, it’s important to be fully informed.
Using A Home Equity Loan To Pay Off Debt
A home equity loan is a second mortgage that allows you to get your money in a lump sum. The amount you’ll be able to borrow will be smaller than your original mortgage since lenders rarely let borrowers cash in on 100% of their home’s equity. The repayment period on a home equity loan is also usually short compared to your original mortgage.
You can use your home equity loan for virtually anything, and that includes debt consolidation. Home equity loans typically have a fixed interest rate.
How Does Debt Consolidation Work With A Home Equity Loan?
Once your lender closes your home equity loan, they’ll send your lump-sum payment. Shortly after receiving your funds, you’ll begin making monthly payments on your loan while continuing to make your primary mortgage payment each month. Since mortgages – including second mortgages – usually have a lower interest rate than you’ll find on credit cards and personal loans, many homeowners use a home equity loan to consolidate higher-interest debts.
For example, you might take out a home equity loan to tackle credit card debt. Maybe you use a home equity loan with a 6% interest rate to pay down the debt on your 18% interest rate credit card and end up paying less in interest over the long term.
Rocket Mortgage® is now offering home equity loans for primary and secondary homes.1