Home Equity Loans VS Consumer Proposals

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You might be hoping for a way to consolidate your debt if you are struggling with credit card debt or paying multiple loans every month. A home equity loan might be the best option for you. Although there are various uses to home equity loans, homeowners often use them to support their home renovations rather than pay down their debts. If you are thinking about getting a home equity loan or a home equity line of credit, you have to do thorough research as it can help you get better terms and a fair deal, which is essential when the value of your home secures the financing. There are also alternative solutions like consumer proposals that help pay off the debts. 

Are Home Equity Loans or Consumer Proposals the best suitable solution?

What is a Home Equity Loan/ Home Line of Credit? 

Home equity is the value of the property that you officially own. Homeowners can utilize this home equity to their benefit and access some borrowing opportunities by using the equity as collateral. They can then apply for a home equity loan or a home equity line of credit (HELOC).  

A home equity loan, known as a second mortgage, is a secured loan with a fixed interest rate. Borrowers can use home equity loans to cover any expenses. If approved for a home equity loan, you will receive an immediate lump sum. The repayment process commences soon after you receive these funds.

Like a credit card, a home equity line of credit is a secured line of credit that often arrives with a varying interest rate. Withdrawals are permitted at any time, and you can reuse the account as long as you pay off your balance and refill your available credit.

What are the risks of Home Equity Loans and Home Equity Line of Credit?

  • Both the options have their interest rates. While you might be capable of tackling the principal loan or withdrawal in a short period, you might have a more challenging time making repayments with the increased interest rates. Also, as the Home Equity Line of Credit comes with varying interest rates, it can impact the payments that you need to make. The more the interest rates, the quicker the debts grow, leading to a financial struggle. 
  • The loans can lead to losing your assets. A significant risk with home equity loans and home equity line of credits is using your assets as collateral. So, if you cannot pay them back within the scheduled time, you could lose your home quickly. 
  • These options can create more debt problems. These borrowing options offer large sums, which could invite you to spend well beyond your means. Thus, you could end up with a balance that will take you a very long time to tackle, resulting in financial struggles. 

Is Consumer Proposal an alternate option?

There are a lot of benefits to filing for consumer proposals. A consumer proposal is the same as a consolidation loan. You start making payments without borrowing any money – it’s like having interest-free loans. You can keep your home by making payments on it over time and thus maintaining control of your assets. A consumer proposal is also a suitable option if the total amount of all your unsecured debts surpass the equity value of your home. Administered by a Licensed Insolvency Trustee, a consumer proposal is legally binding between debtors and unsecured creditors. The debtor agrees to repay the unsecured debt over five years. As soon as this period has passed, creditors will have received full reimbursement for their unsecured debts. 

Are you planning to file a Consumer Proposal? Contact Dana MacRae – Licensed Insolvency Trustee, for expert pieces of advice. 

What about the Secured Credit when filing a Consumer Proposal?

Home equity loans and Home Equity Line of Credits are all forms of secured credit. But, consumer proposals involve your unsecured creditors and not your secured creditors. Hence, the consumer proposals do not affect your assets and do not reduce your secured debts. With a consumer proposal, you can pause the interest and lower the costs for your unsecured debts, and hence you can put more time and money toward your secured debts. A Licensed Insolvency Trustee can help you know more about a Consumer proposal to set up the proposal terms and manage the monthly expenses. Contact Dana MacRae – Licensed Insolvency Trustee, for a free and confidential consultation. 

Getting Home Equity Loans after a Consumer Proposal 

Different lenders have different guidelines for approving a home equity loan or a home line of credit after completing a consumer proposal. Some central banks will need you to wait two years after you have completed your consumer proposal. Tier 2 banks and credit unions demand a 6-month grace period, whereas tier 3 lenders have no delays but are subject to higher interest fees.

Home Equity Loans VS Consumer Proposals 

Home equity loans are not the final debt relief solution. Both Home equity loans and Home Line of Credit carry substantial risks and sometimes encourage you to make unhealthy financial choices. Consumer Proposals negatively affect your credit rating initially, and you will be considered a high-risk borrower when you file a Proposal. 

Are you troubled in making a decision? Contact Dana MacRae – Licensed Insolvency Trustee, for free, confidential, and expert pieces of advice.

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