In today’s financial climate it is becoming more and more
important to expand and diversify financially. Many people have left the “security” of their full time, salaried jobs for the uncertainty of self
employment. The reason being that there is no security in today’s corporate atmosphere. Restructuring and
cut backs have been the norm for the last two years and with long term financial
commitments like mortgages and car payments, people are looking for a way to
better control how these commitments are met.
With the corporate climate also changing significantly with
regard to compensation, people are finding themselves with limited or
dissolvable pensions, another element of job “security” that is floundering (https://www.imf.org/external/pubs/ft/fandd/2006/09/groome.htm)
As a result people are looking for alternate
solutions and home equity loans are one of the ways that people are trying to right their path to either get back on their feet or to secure their future.
There are so many reasons that someone could benefit from using the equity that has built up in their home, including funding an independent job venture, to secure
additional sources of revenue (rental properties), to pay down an existing mortgage which is an appreciating asset. However, consolidating debt has made it’s way to the top of the list in recent years.
Consolidating debt
There are several reasons that consolidation makes sense. It means one bill instead of many and usually at a significantly reduced interest rate. Using the equity in ones house means that their credit score is protected which many other debt consolidation solutions impact negatively.
So what are your options?
There are home equity loans, which are installment loans like regular mortgages or car loans. You receive a lump sum and a repayment reschedule and it usually entails fixed rates and payments.
And than there are home equity lines of credit which work more like credit cards, where there is available credit available and the more debt that is paid down the more credit becomes available to you. These are usually set up on a variable rate tied to the prime rate.
Figuring out which one is right for you depends on a number of factors and the best way to ensure that you are getting the best advice is to speak to an expert, financial advisor or mortgage broker that could examine your unique situation and help to decide on the best solution.
What is the difference between a home equity loan or line of credit and home refinancing?
It is easier to secure a home equity solution and can be less costly in the long run. There may be more costs associated with dissolving the existing terms and entering into new mortgage terms, penalties for early cancellation and in some cases even upfront payments needed to complete the refinance.
However, there are pros and cons to all the solutions mentioned, it is up to you to decide which one is the best for you. Just think financial freedom is just around the corner!
