Using Home Equity to Consolidate Your Debts Consider Your Repayment Period Carefully
You have been overspending without realizing it and soon run into a cycle of debts. You know you have to do something about it and get out of this mess. Upon advice from friends and research online, you decided to use your home equity to consolidate your debts.
Before you sign on the dotted line to consolidate your debt, consider your repayment period carefully first. Because your loan overall interest payment is determined both by the interest rate and repayment period. Although you enjoy a lower interest rate on your equity loan, you still might be paying more interest because of longer repayment period.
Take for example: You have credit card debts of $10,000 and need to take up a $10,000 home equity loan.
For simplicity, well use 10% loan interest rate.
For a 5 years loan, you will need to pay $212.47 monthly and incurred a total interest payment of $2748.20 when you finish servicing the loan.
For a 10 years loan, you will need to pay 132.15 monthly and incurred a total interest payment of $5858 when you finish servicing the loan.
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