Thinking of getting a Home Equity Loan? You may want to think twice

Thinking of getting a Home Equity Loan? You may want to think twice

With todays low interest rates many homeowners are considering
borrowing against their home equity in the form of a home equity loan.

In fact, the number of home equity loan applications coming through our
office has risen significantly this past year. The number # 1 reason most homeowners are applying for home equity loans is to consolidate debt.

Many homeowners see the opportunity to lower their monthly payments AND get a lower interest rate by consolidating into their mortgage.

On the surface this seems logical. Why wouldn’t you consolidate your high interest debt into low interest debt and lower your monthly payments?

But here is what usually happens. A homeowner will consolidate their credit cards, car loans, lines of credit and all their debt into their mortgage. The interest rate is much lower and they immediately feel the relief of a lower monthly payment. 

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Now let’s fast forward 1 year…
This same homeowner who has experienced an increase in cash flow will feel more “rich” and act like everything is peachy keen. So what do they do next? They run up their credit again. Maybe a new car, vacations on credit or home renovations. The cycle continues and they find themselves back in the same situation.

Now my friend, if you have ANY temptation of running up your credit after you consolidate, I suggest that you do NOT use your home equity to consolidate your debt. 

Here’s why….
Credit cards and lines of credit are considered unsecured debt. If you default on them your creditors will simply harass you and try to get their money back and damage your credit.

However with secured loans (home equity loans, 2nd mortgages) your house is the collateral. So if you default they will eventually come after your home. Worse case scenario your home could go into power of sale.

So my friend, I always suggest you think long and hard before you make the decision to get a home equity loan. It may or may not be the right choice for you. The smart decision is the one that puts more money in your pocket and protects you and your family.

Strategic Capital is a local licensed brokerage that specializes in home equity loans. If you would like to find out if you qualify for a loan go towww.loansforontariohomeowners.com to get your FREE pre-approval.

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