Posted: 1 Nov '23

Exploring the Benefits of Equity Lending for Debt Repayment

Exploring the Benefits of Equity Lending for Debt Repayment

Repaying your debts in full is a great achievement that will afford you peace of mind and offer flexibility in managing your finances. You also improve your credit score, which is critical when applying for future personal loans and mortgages.

But what does it take to repay your debts without sacrificing your financial well-being? First, you need a solid debt repayment plan. That means including debt repayment in your budget and exhausting all the possible ways or techniques to repay your loans. In the sections below, we'll discuss everything you need to know about equity lending for debt repayment. Keep reading! Call us today to learn even more.

What is Equity Lending?

Home equity lending, or simply equity lending, is a popular way of securing a loan using your home equity as collateral. Equity refers to the value of the home you own outright, i.e., the difference between what your home is currently worth and what you owe on your mortgage. 

With a home equity loan, you take on a loan against the equity you've built. If you take on a loan on top of an existing primary mortgage, this is called a second mortgage. The latter comes with a slightly higher interest rate since the second lender assumes more risk than the first (e.g., in case of a default.)

The best part about home equity lending is that you can use the money on virtually anything. You can use the money to pay kids' tuition, renovate your home, expand a business, pay medical bills, consolidate other debts, etc. 

Exploring the Benefits of Equity Lending for Debt Repayment 2

Why Choose Equity Lending for Debt Repayment?

Using your home as collateral to secure a big loan for repaying other loans can be daunting. It's more of a catch-22 situation, where you transfer a problem from one financial institution to another. At face value, this is a bad idea. But maybe not. Here's why. 

When you have several pressing loans, especially the smaller, high-interest credit card loans, you'll incur more fees in interest rates. Having several loans also increases the chances of missed payments, which can result in penalties and potential defaults. 

Now that taking on a bigger loan to settle smaller loans can actually be beneficial, here are the benefits of using home equity lending for debt repayments:

  • Consistency and predictability: with home equity loans, the interest rates are fixed, and the monthly payments are consistent throughout the loan term. This makes it easier to budget and plan your monthly expenses. 
  • Better debt management: Dealing with several bills and lenders is hectic. But with one home equity loan, you'll better plan your finances and have only one lending institution to deal with.
  • Lower rates: compared to unsecured loans, home equity lending for debt repayments is cheaper. However, you'll still have to pay any associated fees.
  • Tax advantages: If using the home equity loan to renovate your property or make significant improvements, the interest you pay may be tax-deductible. This provides additional savings and helps reduce the overall tax burden.
  • Extended repayment period: Depending on your unique financial situation, you can choose to repay your loan in up to 30 years. This can reduce the monthly payments, but you should be wary of the combined fees you pay in interest rates. 
Exploring the Benefits of Equity Lending for Debt Repayment 3 Exploring the Benefits of Equity Lending for Debt Repayment 4 Exploring the Benefits of Equity Lending for Debt Repayment 5

Streamline Your Finances Today

Regardless of the debts you want to settle, equity lending for debt repayments can be a great way to secure a cheaper, more flexible, and more predictable loan. Still, these loans come with fees and will increase your debt load. 

Before applying for equity lending for debt repayment, call BMC Mortgage & Investments to help you choose the best lender and guide you through the application process.