Using the Equity in Your Home

Refinancing most often takes place after interest rates have dropped. In some situations it is advantageous to refinance when you need a low-interest loan.

One of the most prevalent uses of this type of the home equity loan (HEL) is to pay off credit card debt. One useful advantage to taking care of plastic debt this way is that it allows the debtor to amass all his or her debt into one debt. This is a helpful feature because having many small debts increases the chances of losing track of payment schedules. When you miss payments on credit cards then you suffer late fees which add to your debt. One big debt, makes it easy to keep track of when you need to pay.

The interest on home equity loans is substantially lower than on credit card debt. Depending on the size of your debt, this could mean double or triple digit savings on subsequent monthly payments.

HEL interest is tax deductible. You save even more money that way.

If you have bad credit, you might have difficulty convincing your bank to give you one of these loans. The more equity you have built up in your house, the larger the size of the HEL that you will be permitted to withdraw.

Credit card debt is only one use for HELs. Some homeowners feel a desired home improvement is worth the added interest, especially if the improvement can help save money. One might use a HEL to add solar panels to one’s home. The energy savings would effectively decrease the interest from the loan used to finance the purchase and installation.

In the case of paying off plastic, you are removing equity from your home and placing it into whatever you charged on to your credit cards, plus the interest they accrue prior to paying them off. A home improvement using a HEL is equivalent to boosting the value of the home and the principle required to pay it off. It does not reduce the amount of equity that has been built up.