Let’s look at one example: You took out a home equity line of credit ten or more years ago and during the draw period – the time when you could “draw” on your credit line – you were paying a manageable amount: 5 per month on a 0,000 line of credit.
According to the terms of this loan, after ten years the draw period became the repayment period – the next 15 years where you have to pay down the loan like a mortgage.
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Options for smaller debt loads that don’t put your home at risk include: 0% balance transfer card: For people with good or excellent credit, issuers offer balance transfer credit cards with introductory no-interest periods from six months to two years.
This is usually the cheapest option for those who qualify.
But probably you didn’t expect that $275 payment to become a $700 payment that could move even higher if the prime rate increases.
By consolidating the two loans, you could potentially save more than $100 each month and lock in your interest rate rather than watch it escalate if prime goes up.
And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward –- and free. " You may be considering tapping your home equity to consolidate your credit card debt, a move that can lower your interest costs but has risks.
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Because of these risks, Nerd Wallet recommends that you reserve home equity for emergencies.
Consider these pros and cons: Pros A homeowner with good credit is likely to have better options that don’t risk the house.
To understand what happens when you consolidate you have to know a few things about the current loans you have.
If, when you go to consolidate loans, you realize that your second mortgage was used to pull cash out of your home for some reason – called a cash-out loan – it may add cost to the new loan and reduce the amount for which you qualify.
A “no” answer to either question indicates too much debt.