A good credit score is important for more reasons than just obtaining new credit. These days, it can factor into everything from landing a new job to getting the best deal on your insurance policies. It's more important than ever to avoid late payments on your mortgage!
A 100 point drop for one late mortgage payment? It’s true. A single 30-day-late mortgage payment can cause your score to drop by as much as a hundred points. Credit scoring algorithms vary based on many factors, and in some instances, the damage may be even greater and last for years.
The costs accumulate. At the time, a single missed payment will cost you only a late fee, but the expense really adds up on your next loan or missed opportunity. Low credit scores typically mean a higher rate and cost. Higher rates can mean hundreds or thousands of dollars of extra expense over the life of a loan.
Missed payments are usually unplanned. Usually, events beyond our control lead to late payments, such as an accident, illness, job loss or family issue. At other times, carelessness or a hectic life may result in a forgotten payment.
What can you do?
Little other than time will decrease the negative impact of a late payment, so prevention is the one sure remedy. If you don't already have a good system in place to assure timely payments and are not sure what's best, reach out anytime. We'll be happy to help set up a plan that's right for you.
Let’s talk about another common purpose for HELOCs—consolidating debts. A cash-out refi is also often used for this purpose.
With the HELOC, you add an additional loan to your current mortgage. With the cash-out refi, you will still have only one loan. Depending on how much you owe on your current loan and how much cash you borrow against your home’s equity, the total amount may be more or less than what you currently owe.
Even in times when mortgage rates are not at their lowest, home loans can still be an amazing bargain compared to consumer and installment rates. A HELOC or cash-out refi can help you pay off debts faster and reduce both the the total interest and total amount of cash out of pocket you spend each month.
Consolidating multiple debts into a HELOC or one home loan is not for everyone. For instance, using your equity to have the equivalent of a 30-year car loan is rarely a great idea. But it may work if you have the discipline to take advantage of a low rate to speed up—rather than slow down—payment terms. In other words, use the low rate of a HELOC but pay the amount used for the car back in the same 4 years or so that you would have with a typical auto loan.
Consolidation can make debts disappear with less total interest expense than they would otherwise.
Want to explore what a good consolidation plan could mean for you? Reach out, and we'll be happy to help!
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