If you have ever been desperate for cash, you may have been tempted by the bright bold posters you see in the windows of pay day loan shops offering quick and easy money. Well don’t fall for – these places are a trap. It is predatory lending at its worst. The interest you’ll pay on these types of loans is huge. It’s not unusual for a payday loan company to charge in excess of $21 per $100 borrowed per two weeks. That’s the equivalent to an annual interest rate of 548%!
So if you know that payday loans are not a smart idea, but you need cash – then what? Well, there are a number of smarter alternatives available – particularly if you have equity in your home.
HELOC – A home equity line of credit (HELOC) works in a similar way to a personal line of credit but because it is secured to the equity in your home, you may be able to get a higher limit. Using a HELOC is similar to using a credit card, but with a much lower interest rate. You have a set amount of money that you can borrow from but you only pay interest on the money that you actually borrow. You can borrow and repay as often as you like, as long as you don’t exceed your limit.
Refinancing – Refinancing is a way that you can roll your higher interest debt into your mortgage. It involves breaking your current mortgage and getting a new higher mortgage that pays off your other debt. There will usually be a penalty for breaking your mortgage, but the cost is often worth it – particularly if you are close to your renewal date anyway.
Second Mortgage – A second mortgage is exactly what it sounds like. It is an additional loan that uses the equity in your home as collateral. The amount of interest you will pay will likely be higher than refinancing, but you won’t have to pay a penalty for breaking your first mortgage. This is often the preferred option if your mortgage renewal date is still a long ways off (which makes the penalty for breaking a first mortgage higher).
If you are struggling with debt, contacting your mortgage broker is a much better idea than getting into the payday loan trap. If you would like to learn more about these alternatives and see if any of them make sense for you, then contact the team at AKAL Mortgages today.
When we say YES! We stand behind our promise.®™