There have been homeowners looking at current factors in the housing market that may offer advantageous refinancing opportunities or even affordable home equity loans, as low mortgage rates have potentially offered more affordability to certain individuals, and this is where some homeowners have begun to consider using their home’s equity to pay off personal debts that may range from college loans to an automobile. Yet, many financial counselors often caution homeowners against using opportunities like cash-out refinancing or a home equity line of credit to pay off unsecured debts as this could potentially be problematic despite the fact that there are conditions present that may make a homeowner’s debt situation somewhat more affordable.
Understandably, homeowners feel that if they can refinance for a much lower rate on their home or take out a home equity line of credit with one of these low rates currently available, they may stand to find themselves in a better position when all is said and done as many homeowners feel that consolidating debt onto their mortgage is essentially attaching these obligations to a much lower interest rate than they previously have had on some personal debts like a personal loan or credit card. Yet, this is where homeowners must make sure that they sit down and calculate not only the total costs that may come as a result of either refinancing or taking out a HELOC, but what the overall costs will be when all of these debts have been erased.
Furthermore, homeowners often make the mistake of paying off unsecured debts, which essentially places these debt obligations onto a homeowner’s mortgage when options like cash-out refinancing or used or adding to their mortgage debt situation when a home equity loan is acquired, and then proceeding to acquire more debt in their personal life through the use of credit cards or other opportunities that may be available. Essentially, this is a common mistake that consumers make when consolidating as they feel that since they have put multiple debts into one location, which may come with an affordable rate and payment plan, they are free to acquire other areas of debt as long as they can continually meet minimum monthly payments.
This is where interest payments can catch up with a homeowner and, if the overall debt in a homeowner’s life gets to be too problematic, they may have trouble meeting certain costs, like their mortgage, and this could cause the loss of a home. It’s because of this reason, among many others, that homeowners need to look at not only the rate they may get when they refinance or use a home equity line of credit, but what closing costs may be associated with this particular type of financial move, how much will they be paying in the long run once they have added this additional debt to their home, and homeowners should also explore debt relief opportunities that will not endanger their home, as there are a wide variety of options that homeowners can use to pay off unsecured debts like credit cards, student loans, and car loans.
Low interest rates currently available may be tempting for some but it’s important for homeowners to realize that it will be a personal decision as to whether they use their home’s equity to combat debts in their life, but this decision should not be made without a great deal of calculation and consideration on the part of the homeowner as only they will be able to figure out which debt relief option would benefit their personal financial situation.