Sometimes the solution to your financial problems is found at home
Sometimes in life the unexpected and unfortunate happens – and the unexpected can be very expensive. Whether that’s sudden medical bills not covered by your health insurance plan, emergency vehicle repairs being needed, or even unexpectedly owing significantly more in tax than you expected, any sudden expense can add a massive amount of stress to your life.
If your savings aren’t quite what you’d like them to be, getting hit with a sudden five-digit bill could leave you facing significant credit card debt, jeopardizing your stability and your ability to make ends meet. However, there is an alternative option: leveraging your home equity.
Whether through a home equity loan or a refinance loan, if you have equity in your home or other real estate investments, you can use that as collateral for a loan with far lower interest than a credit card or payday loan. And while you have multiple options in a situation like this, usually the solution is to pursue either a larger mortgage than your existing loan – a refinance – or an additional, second mortgage on your home in the form of a home equity loan.
While which option you go with depends on your specific situation, either options means that you’ll pay less in interest than you would carrying a large balance on a credit card. After all, credit cards have an average APR of 17.30%, and payday loans have a staggering average APR of over 400%.
Compare that to a mortgage, which can be under 4.00% APR in the right conditions – that’s less than a quarter of the interest you’ll pay with a credit card, and one percent of the interest payments you’d be facing with a payday loan.
Does This Mean I Could Lose My Home?
As with any secured loan, the lender gives money in exchange for both interest – the cost of having that money over the life of the loan – as well as the promise of collateral. If you were to default on your mortgage, the lender could foreclose on your home – however, the sheer cost of a refinance or home equity loan is far lower than using credit cards or payday loans. Even if your monthly mortgage payment goes up, it won’t be nearly as high as the interest on a credit card or payday loan.
This means that if you already have a mortgage, you’re in no worse position than you were before. The only difference is that you just have less equity in your home. And by avoiding the exorbitant fees associated with carrying a large credit card balance or taking out a payday loan, a home equity loan or refinance will actually save you money long-term, putting you in a more stable position so you can eventually become debt-free.
It’s impossible to prepare for every emergency, and sometimes even the best plans won’t be able to handle what life throws your way. If you’ve suddenly had to make room in your budget for a massive sudden expense, a refinance or home equity loan can be a real solution to your problems, with minimal interest compared to other options.
If you’re in a less-than-ideal situation and aren’t sure if a refinance or home equity loan is right for you, please reach out to us and we’ll do whatever we can to help you.