Home Equity Loan?
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I am considering a home equity loan to pay off just a couple of bills - - a student loan, car payment, credit card... But I don't know anything about this type of loan! What can you teach me... are there closing costs required, etc??
Home Equity Loan?This can be a great way to pay off debt. In many cases, when do a home equity loan for a client, we can reduce monthly costs significantly.
Shop around for deals re: closing costs and rate. There is one offer available from a Canadian Bank now that will give you a rate of Prime or lower and cover the closing costs if your loan is $25,000 or more.
In Canada, interest on the home equity loan is tax deductible only if you are using it to purchase investments, so check with your accountant.
An equity line of credit is another way to go. This is a revolving loan similar to a credit card. You can use it and pay it off and use it again. This may also be a great way to go as long as you have to discipline to pay it off.
Home Equity Loan?It's very similar to your first mortgage - completing all the paperwork, closing costs, etc.
Pros: interest rate is generally lower than credit cards.
interest is usually tax-deductible.
Cons: interest rate MAY be higher than student loans and car - check this out before using a HEL to pay them off. It may also be higher than re-financing your first mortgage and taking cash out to pay the other debts.
If you continue to use the credit cards, you can get right back where you were, only without the safety net of the HEL available.
We have a Home Equity Line of Credit, just in case. We haven't used it in the two years we've had it because we started a small emergency fund around the same time. We've used that to pay unexpected expenses (car repairs, home repairs - not maintenance). That way, we're not paying interest.
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