CHAPTER 6 Selling Your Home with a Lien our Home with a Lien
For some people, using the equity in their houses to pay outstanding debts or loans, including their property taxes, is the only option available. There are a few ways to use home equity to pay debts. One choice is to re-mortgage the home. Another is to sell the property altogether. Re-mortgaging (or refinancing) property has the advantage of drawing down equity such that one has additional capital to service debt. It’s trading an asset (ownership in your house) to eliminate a liability (personal loan, credit card debt, and current of delinquent taxes). The proceeds obtain through refinancing the mortgage can be used to pay off debt. In this manner, a homeowner who has several smaller debts, such as multiple credit card debt at interest rates approaching 20%, may consolidate all debts into one lower monthly payment on a loan with significantly smaller interest. This is more manageable on a cash flow basis than a situation in which one has many unpaid, disparate loans. The homeowner should approach several different lenders to shop for the best deal. The second option is selling the home. Selling the house also has advantages. An intangible, yet important benefit of the sale of a home to cover debts is the financial sense of freedom that one feels once the transaction has been completed and the seller is debt-free. Of course, the seller will have to be able to make rental or other living arrangements. If this is done before severely damaging a seller’s credit rating—even if selling a home to clear debts—it’s still possible to purchase a new home. 41
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