Borrowing against your home, is it wise?

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With mortgage rates so low, if you are in debt, it may be a good option to transfer some of your unsecured debt to your house. How do you do that? By applying for an equity loan. You can use an equity release calculator if you are over 55 and would like to know how much money you can borrow against your home. If you have positive equity, you can try to remortgage in order to release that equity and get more breathing room in your budget. But you need to take into consideration that there is a great difference between secured and unsecured debt: the bank could take your assets if you cannot meet your payment obligations.

If you have credit card debt, a consumer loan, or a car loan, the bank can not come after you and seize your assets. Whereas in the case of an equity loan, the debt is secured against your house. Meaning if you can’t make the payments, the bank can foreclose your house. So be very careful.

The main advantage in getting an equity loan is that you can pay off existing debt that carry a higher rate of interest, and lower your monthly repayments and interest rate.

I do not carry consumer debt, but would be interested in such an opportunity in order to leverage money for other investments, like my cattle or coconut plantation investments. If I was able reduce the length of you loans, it would be worth it. I am aware of the risk but would still be able to make the payments without compromising my current budget.

In a case of debt pay off, it can also be a good solution. But if you are trying to lower repayments in order to borrow more, and increase your debt load, it is not advisable. You could get in real trouble.

I talked previously about calculating the average weighted interest rate on your debt. That means the average rate of interest you are paying on your overall debt. If this rate is higher than the rate offered for an equity loan, you will save money by getting an equity loan and transferring your most expensive debt to a secure loan. There are lots of loan calculators out there to figure out how much you will save in interest by lowering the interest rate on your debt.

It would also be the perfect time, if you have a little saved up, to throw that at your most expensive debt (the debt with the highest interest rate), so on top of lowering the rate, you also lower the principal owed. While I am not looking at paying my 2.29% mortgage any sooner than needed, the most expensive debt is worth paying off at the earliest. With a lower rate and a lower principle, you will reduce the length of you loans and have your debt paid off in no time.

Any extra money will help. A windfall, money from a second job, found money, money saved by lowering your bills, saving on groceries… Try to reduce eating out, limit your car usage to a minimum, buy second hand items, and so on. The possibilities are endless. Then you can determine how much money you need to release against your house, and proceed with a refinance or equity loan. But you have to be determined to get rid of your debt. If you use the breathing room to borrow some more, you will only repeat the same and won’t benefit from the process.