As it can easily discharge the capital tied up in assets for immediate use, home owner loans are ideal for purposes like debt consolidations and home improvements.
It allows a homeowner to clear all his existing debts on bank overdrafts, credit cards, loans, and store cards.
Home owner debt consolidation is generally in the form of secured loans, and they offer several benefits such as one lender to deal with, lower monthly payments, reduced rate of interest, and single payment against several payments.
Second mortgage, home equity loan, and home equity line of credit are some of the home owner loans available for debt consolidation.
A second mortgage is considered an excellent option to obtain required cash for debt consolidation.
It is a loan secured by property like home, which already carries a mortgage loan.
Usually, this loan has shorter terms and carries high interest rates.
The main advantage is that the interest you pay on this loan is tax deductible.
In the case of home equity loans, homeowners use the equity in their home as collateral.
Equity represents the difference between appraised value of home and mortgage payment.
Interest rates are low and you can avail tax benefits, as the interest paid on home equity loans are tax deductible.
Also referred to as HELOC - a home equity line of credit is a type of revolving loan in which your home serves as collateral.
In contrast to second mortgages and home equity loans, it allows homeowners to borrow money as needed using a check book or credit card.
Home equity line of credit has lower interest rates.
However, to avail these loans, repayment potential is essential.
If payments are not made in time, the financial institution has the legal right for foreclosure of the borrower's house.
It is therefore necessary to compare the interest rates offered by various financial institutions before a final choice is made.