With the struggling economy today, you might find yourself deep in debt and having trouble paying your bills. Fortunately, if you own a home, there are a couple of good options available to you. You can choose cash out refinancing or you can go with a home equity loan or line of credit.
Cash Out Refinancing
With cash out refinancing, you refinance your mortgage for more than you currently own and then keep the difference. The money that you receive can be used for debts, student loans, medical bills, home improvement, or anything else that you desire. You completely pay off your mortgage and then replace it with a different mortgage. Your principal amount of your new mortgage is bigger than your current mortgage.
Because you already own the home, cash out refinancing is usually very easy to qualify for. In addition, there are usually some good tax benefits, and sometimes you can obtain a lower interest rate than what you were paying. If you already had a first and second mortgage, cash out refinancing allows you to consolidate debt into one monthly payment.
By consolidating, you can lower your monthly payment while achieving lasting debt relief. There are different terms involved with this type of refinancing, ranging from 10 to 50 years. You can also get a fixed or variable interest rate.
If you get a cash out refinancing loan, it is important to read the terms and conditions of the loan. You want to make sure you understand the interest rate, monthly payment, and length of the loan. Before you use cash out refinancing, you want to determine how long you plan on staying in your home. You also want to make sure that you can make payments on the loan.
You need to have equity in your home for cash out refinancing. Some lenders require you to have lived in your home for at least a year.
Home Equity Loan or Line of Credit
A home equity loan or line of credit is basically a second mortgage. With a home equity loan, you use the equity in your home as collateral so that you can borrow money. Therefore, your house will act as collateral, so if you do not make payments, you could lose your home. The term of the loan could be anywhere from 5 to 30 years, and interest rates are fixed.
A home equity line of credit permits you to borrow a certain amount of money for the life of the loan. You can take out the money as you need it, so you are not required to take out a lump sum.
For a home equity line of credit, the interest rate is variable, and the term of the loan is less than a home equity loan. The length of the loan is usually between 5 to 15 years, and you will not be permitted to increase the loan. If you withdraw the money, there is normally a minimum amount that you can take out.
With both a home equity loan and line of credit, you must pay off the balance immediately if you decide to sell your home.
As a homeowner, you have options when you need to consolidate your debts. Make sure that you research both options, and then you can find the best choice for your needs. By consolidating your debts, you can get back on your feet and look towards a brighter future.
Monique Rowe is a guest writer that writes for Franklin Debt Relief.