Should I Pay Down Credit Card Debt with a Mortgage Loan?

If you are looking to pay off your credit card debt using a lump sum, your best option is to use a home equity loan. This is especially most effective when the interest and monthly payments are fixed. Fixed rate is the most popular. Between 70-80% of all home equity loans are fixed. Fixed rate is so appealing because the interest remains the same for the life of the loan. If you take out a loan at 5% interest, it will remain at 5% even if interest rates rise to 7%. A less common route is adjustable rate. One drawback is that adjustable rates are harder to shop for than a fixed rate may be. This may be appealing if you realize that you are in a temporary living situation, and may be moving soon. This is because your initial interest rate will often time be lower than the current rate. But if you are looking for stability and flexible planning, then a fixed interest rate would probably suit you best. Home equity loan rates are often tax deductible. If you would rather pay off your credit card debt over time, your best option is to use home equity line of credit. Your property will be used as security for the loan when you use a home equity line of credit. So if you are late on payments, your run the risk of losing that property. A home equity line of credit allows you to write checks at any time during the life of the loan, for any amount that is within your set credit limit. Your monthly payment will be determined by the current interest rate and the amount of credit you have used. This also allows for flexibility. You may use what you want, when you need it. One the life of the loan has expired it will either new to be renewed, or that loan will need to be paid in full. Your line of credit will be determined by your credit history, incomes, other debts, financial obligations, as well as your ability to repay. Be aware of factors that may come into play while shopping for a loan.

1. You may be allowed in some states to borrow more than your current home is worth. This may be tempting, especially if the debt is great. But this may also lead to more debt then anticipated, having used your available resource of the home equity loan/home equity line of credit. This may also affect the future sale of your home.
2. Be aware of closing costs, appraisal, application and processing fees. There may also be a fee each time you draw from your line of credit. But fees should not be a deterrent. Fees may often offset other aspects such as the interest that may occur over the life of the loan.
3. Most importantly, do not agree to any home equity loan if you do not have the necessary income to make the monthly payments. If you find yourself being pressured into signing documents, then that loan is probably not for you.