You can pay off debt with home equity in other ways — but doing so isn’t always a good idea
However, even if you have a situation like this and paying off debt with a cash-out refinance loan makes financial sense, there are some downsides. You’re putting your home at risk if you can’t pay your new mortgage loan, as the lender could foreclose. And there could be substantial closing costs and fees to pay for the new mortgage loan. You need to be aware of the risks — and costs — before you move forward.
A mortgage refinance loan isn’t the only https://www.cashadvancecompass.com/installment-loans-nj/kingston way to tap into equity in your home to pay off debt. Home equity loans also usually have lower interest rates than credit cards, personal loans, and similar types of consumer debt. But they work differently than cash-out refinance loans.
When you take out a home equity loan, you don’t get a big loan used to repay your current mortgage and keep the cash left over. Instead, you keep your current mortgage and take out a second smaller loan for the amount you need to pay off debt or accomplish some other goal. You can pick your repayment period, which might last anywhere from a few years to a few decades.
You could also take out a home equity loan and use the proceeds to pay off higher-interest debt
If you choose a shorter repayment timeline, or if you borrow only a small amount and pay it off early, you could save a lot of money this way. (más…)
