Learn about Repairing Your Bad Credit Using Your Mortgage
A Credit Article Contributed by Brandie King
Learn about Repairing Your Bad Credit Using Your Mortgage
You can use your mortgage to help you repair your bad credit, but to do so you need to understand more about the process. This article will help you with that understanding.
Repair Bad Credit with Your Mortgage: What Does Equity Mean?
Equity is the financial interest you have in your property. The amount of equity you have is calculated by subtracting the amount you still owe on your mortgage from the appraised value of your house. You can find out what your house is worth by having a profession appraiser come and appraise it. The amount of equity you have will increase as your property grows in value and the mortgage is paid down. Here is an example of how you would calculate your equity.
$125,000 (appraised value of your home) - $95,000 (amount still owed on mortgage) = $30,000 (amount of equity you have)
Repair Bad Credit with Your Mortgage: What is a Home Equity Loan?
A home equity loan is a loan in which you refinance your house and use the equity built up in it to pay off your other debts. You might also hear a home equity loan called a second mortgage. When you do a home equity loan you are using your house as collateral, so if you do not pay the loan payments you will be at risk of losing your house. Sometimes the home equity interest can be used as an itemized deduction.
Repair Bad Credit with Your Mortgage: What is a Home Equity Line of Credit?
A Home Equity Line of Credit (HELOC) is a loan set up as a line of credit and should not be confused with a home equity loan where the loan is for a set amount. A HELOC is very similar to a secured credit card and is a form of revolving credit. Just like with a home equity loan, your house will still be used as collateral. If you do not use the line of credit provided by your home equity line of credit then you don't have any monthly payments to make. In addition, a home equity line of credit will involve a variable interest rate that is calculated on a daily basis.
Repair Bad Credit with Your Mortgage: is This Right for You?
If you have done everything else you possibly can to try fixing your bad credit and nothing has worked so far, then you should consider one of the above options. Using one of these methods will not work for you if you do not change your spending habits though. The purpose will be defeated if you use your equity to pay off all of your debts then keep spending like you did before. Debts incurred after the loan goes through will not be included in the loan.
You should also know that using your equity to pay off your debts will not make them disappear. It will just lump all of the payments into one single monthly payment.
