Home owners having trouble paying your credit card debt and bills may want to consider a home loan debt consolidation. Perhaps you are also considering a home equity loan, but are unsure of what the differences are, and which one is better. Here is a comparison to help you find the right answer to get out of your current financial situation.
Home Loan Debt Consolidation
This is actually what it sounds like, a way to combine your many different sources of debt such as various credit cards and loans. This type of loan will be secured by collateral, in this case, your home.
- Low interest rate
- Low monthly payments
- Longer terms and hence more interest being paid out in the life of the loan.
- This is a secured loan if you default you could loose your home. Whereas credit card debt will just affect your credit.
You should keep in mind that to make a home debt consolidation loan work best for you, you should make an attempt to pay it off early. This will cut down the total amount of interest you pay over the life of the loan.
Home Equity Loan
This is a loan that works like a second mortgage and it uses the equity you have built up in your home as the collateral.
- Allows you to use your home equity without affecting the current rate of your mortgage
- Typically less additional fees
- The Weaknesses
- Higher interest rates
- Two loan payments
- The Winning Decision
If you have a high interest rate on your current mortgage then you may benefit with a home debt consolidation loan, since a high mortgage rate will mean your home equity loan will have a high interest rate as well. However, if your current mortgage has a low interest rate then you may benefit equally with a home equity loan.
Use this information to help you select what will best suit your personal needs. It is probably wise to also consult a finance counselor to assist you in making the right choice.