Posted: 1 Nov '22

Can Equity Lending Help Get You Out of Debt?

Can Equity Lending Help Get You Out of Debt?

Getting out of debt is one of the life goals that many people struggle with. Those who successfully get out of debt often use strategic financial management techniques such as debt consolidation. The idea is to get rid of credit card loans and to have your debt in one place for easy management and repayment. 

One popular and effective way to consolidate debt is to use your home equity to secure one large, low-interest loan and use it to repay smaller, high-interest loans. If you are wondering whether equity lending is right for you, call us today for a consultation.  

What is Equity Lending, and How Does it Work?

Home equity lending is a way of acquiring a second loan using the equity you've built in your property. Your home equity is simply the difference between the home's current value and the amount you owe the mortgage lender. If your home is worth $700,000 but has an outstanding mortgage of $400,000, your home equity is ($700,000 -$400,000) $300,000. 

A home equity loan is a type of second mortgage that allows you to borrow a loan on top of the first mortgage so long as you have built up enough equity on your home. Most banks, private lenders, and credit unions offer home equity loans with fixed/adjustable rates. 

Home Equity Loan for Debt Consolidation 

Since a home equity loan is a lump sum, it works well for debt consolidation. Another benefit is that the loan attracts a relatively lower interest rate since it's secured using your property.

Here are the other benefits of using equity lending for debt consolidation:

  • They are easier to qualify, especially if your property is in good condition.
  • You only use your property as collateral, plus you don't have to sell the other assets to clear your most-pressing debts. 
  • Having all your loans in one place makes debt management convenient and less stressful.

If you live in an area with high home prices and a high cost of living, your home equity is a great asset that can help you repay debts and live comfortably until you are financially stable. 

Is it Right for You?

Whether or not you should use equity lending to pay off debts is more of a strategic decision whose benefits vary depending on your unique situation. If you qualify for the loan and have smaller and high-interest loans you want to repay, it is something worth going for. However, if you have a low/poor credit score, don't have a clear plan for the loan, or the amount you qualify for won't pay off the other debts, perhaps you should rethink your strategy. Taking a home equity loan just because it's available will get you in more debt, which you should avoid by all means. 

Get Help Whenever Necessary 

Navigating the debt management puzzle is never easy, especially when you need to make some hard decisions. Regardless of your unique situation, reach out to BMC Mortgage & Investments today. We'd love to listen and help you use your home equity to achieve financial freedom.