Credit Card Debt Still Tied to Home Equity Loans
Keeping 15 to 20 percent of your equity even after cashing out is a good thing. Though regulation has not changed since the financial crisis of 2008, lender practices have. And that’s what most lenders require of those new borrowers who are making home equity loans popular again. It’s a safety valve for consumers, too.
According to Michael Moskowitz, president of the mortgage bank, Equity Now, “Those with enough equity in their homes have been able to substantially reduce the monthly payments on credit card debt, student loans and personal loans.” But they aren’t for everybody.
There are plenty of options for borrowers to consider. In some examples, a 30 year mortgage / credit card consolidation loan may lead to substantially lower payments right now. Other scenarios offer 15-year mortgages that save on interest in the long term, but increase current monthly payments. It’s always smart to shop the banks for the best eligible deal.
The lessons of the past are instructive: Only those homeowners who have critical needs to turn their equity into a new mortgage should consider that option. If you plan on using your credit cards to run up more debt, the new consolidation mortgage may not be for you. You’ll need a credit score of at least 700 to qualify for the maximum loan amount (usually 85% of your equity), from most mortgage banks. Debt to Income (DTI) ratios are critical factors. Credit card debt may not be considered part of DTI, but only if the borrower agrees to pay off the cards at the mortgage closing table.
If you’re unsure, it’s best to consult a debt counselor with the details of your situation. You can always find help from one of our top recommended debt relief companies.