In real estate, a revolving debt is a type of debt that will allow a borrower to pay off and borrow up to a predetermined limit. Until that limit is reached, you can pay off and borrow from the same debt again and again. A very good example of a revolving debt is a credit card.
In this kind of credit arrangement, the borrower is billed with the actual amount borrowed or spent when purchasing real estate assets plus any interest due.
Secured or Unsecured
A revolving debt can be either secured or unsecured. The former requires a collateral that will be seized when you default on your debt payments, while the latter doesn’t require collateral and lenders cannot seize any personal property automatically if you stop repaying your debts.
Revolving Debt and Your Credit Score
When you apply for a credit card or loan, lenders will look into your financial background and will examine installment debts and revolving debts to determine if you pose a low-lending risk to them. In your total Fair Isaac Corporation (FICO) score, for example, 10% of it is based on the installment debts to revolving debt ratio.
Since most lenders will look into your credit rating if you apply for a mortgage, it is best to take control of your debts, whether they are revolving or installment.
Real Estate to Pay Off Revolving Debts
Having difficulty paying off your revolving debt? You can use your property to clear it.
For instance, you can refinance your existing mortgage to reduce your monthly dues and pay off your revolving debts. You can also apply for cash-out refinancing or home equity loans. Whether or not these options make the best solutions will depend on your property.