Use Mortgage Calculators as a Debt-Management Tool

By Richard Barrington Columnist

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You have probably seen a number of different mortgage calculators, and possibly even used them once or twice. They are popularly used by people to figure out how much house they can afford, but they can also be a valuable debt-management tool.

Tracking your existing debt payments side-by-side with a mortgage calculator can help you gauge when it might make sense to consolidate your debts into a home equity mortgage.

Tracking Mortgage Variables

To compare your current situation with where you would stand if you consolidated debt into a home equity loan, take the following steps:
  • » Create two totals from one month's worth of credit card bills and installment debt statements: remaining principal and monthly interest/finance charges.
  • » Multiply those monthly interest/finance charges by 12, and divide the result by your remaining principal. This will approximate your weighted average interest rate.
  • » Use your total principal and weighted average interest rate as inputs into a mortgage calculator. Choose a relatively short time period, such as five or ten years, but if the resulting monthly payment is considerably more than you are paying currently, you may want to try a longer time period.
  • » Finally, use the same principal and time period to run the mortgage calculator with current home equity loan rates and closing costs.

Plan Realistically

The result will give you a side-by-side comparison of what your debt is costing you at your current rate of interest, and what it would cost in a home equity mortgage. If you can save a significant amount of money with a home equity mortgage, then it may well be worth it to consolidate your debt. Remember though, plan realistically before putting your house up as collateral. Make sure you take out a loan with payments you know you can make, not with payments you hope you can make.

Yahoo! Finance

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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