Home equity is nothing to be taken lightly! It is the value that you’ve created in your home through your regular mortgage payments. However in paying off your monthly obligations, it’s not hard to rack on the debt in today’s tough economy. Debt can pile up and your credit score will suffer.
Having a low or poor credit shows unreliability to creditors. Having a low credit score affects standard of living because everything from a house, car to credit card is dependent on this. In such situations, your home equity can be used to improve your quality of life. There are several ways to pay off accumulated debt and improve your credit score:
Avail the option of refinancing:
There are many ways to improve your credit score by using your home equity. The first thing that you can do in this regard is to refinance your mortgage. A mortgage refinance simply finances a new mortgage for the market value of your house and you get to keep the equity generated in the house as cash. This cash can pay off debt and you’ll see your credit score shoot up.
Borrow on the prepayment
If you’ve made lump sum prepayments on your mortgage, some lenders let you borrow against those amounts. The rate will vary but it will be much lower than credit card or unsecured debt rates. This can be quite helpful
Get a second mortgage
A second mortgage is another loan on the house. Here essentially you take out another mortgage on the equity value that has been paid off in your house. Borrowing unlocks the equity and releases cash for you to pay off debt. You can borrow up to 80% of the appraised value of your home
Use a HELOC (Home Equity Line of Credit)
A HELOC is a line of credit secured based on the equity in your home. Because it’s a secured loan, you can use the lower interest rate from a HELOC to pay off other debt and it will reduce your debt load while increasing your credit score.