Repair Your Credit by Using Your Mortgage
A Credit Article Contributed by Brandie King
Did you know that you can repair your credit by using your mortgage? You might be surprised to learn that you can. Before you dive into this there are some terms that you need to understand. This article will help you to understand the different terms that you will see and hear when using your mortgage to repair your credit.
Mortgage Credit Repair: Debt Consolidation
One of the most important things that you need to understand is that using your mortgage to repair your credit is a form of debt consolidation. Debt consolidation is the process of combining all of your debts into a single loan account. That single loan account will allow you to have one payment each month instead of a bunch of separate payments for all of your creditors.
Mortgage Credit Repair: Equity
Equity is the financial interest you have in a property. It is determined by what the difference is between the fair market value of the property and the amount that is still owed on its mortgage. The equity in a home will increase as the property grows in value and the mortgage is paid down.
The first step in finding out how much equity you have built up in your home is to have a professional appraiser come an evaluate your home and tell you how much it is worth. >From there it is easy to figure out how much equity you have. Just subtract the amount you still owe from the appraised value. The resulting figure is the amount of equity you have. Example: $200, 000 (appraised value) - $150,000 (what you still owe on mortgage) = $50,000 (the amount of equity you have)
Mortgage Credit Repair: Home Equity Loan
When you use your mortgage to repair your credit you are taking out a home equity loan. A home equity loan is also known as a home equity line of credit or a second mortgage. This is a loan where you refinance your house and then use the equity you've built up in your house to pay off your other debts. Sometimes the home equity interest can be used as an itemized deduction.
Mortgage Credit Repair: Additional Information You Need to Know
Here are some words of warning for you. Taking out a home equity loan to pay off your credit card debts refreshes the balances on the credit cards that are paid off. Do not use this as an excuse to charge more stuff on your credit cards. You will end up right back in the same boat that caused you to need the home equity loan in the first place. For this to have maximum benefit to you, you will absolutely have to change your spending habits.
Make sure to keep in mind that you are basically using your house as collateral when you get a home equity loan. That means that if you do not make your payments on the home equity loan you will lose your house, so be sure the make the payments on time for your home equity loan.
Something else that you need to understand is that taking out a home equity loan and using it to pay off your debts will not make those debts disappear. It just lumps all of the payments into one single monthly payment.
