Using Your Home Equity: Debt Consolidation for Homeownersby Karen Lawson
Loan Page Columnist
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The cost of living is going up. In the past, you paid your credit card balances in full each month, but now it's difficult to pay off everything. Refinancing your existing home loan with a "cash out" option or taking out a home equity loan can provide ways to consolidate high-interest consumer debt at a lower rate. Also, the interest you repay on the refinance or home equity loan may be tax deductible.
Say Goodbye All those Loans with Debt Consolidation!The amount you borrow to refinance or for a home equity loan will partly depend on what you currently owe on your mortgage(s) and how much your home is worth. The difference between these two figures is the amount of your equity. If you owe $300,000, and your home's appraised value is $450,000, your equity is $150,000. You may qualify to borrow against a portion of your equity and receive cash to pay off bills such as car loans, credit cards, or other installment loans.
Sounds Great! How Much Will I Save?How much you can save depends on how much you borrow, the interest rate and terms of your refinanced mortgage or home equity loan, and the interest rates and balances of the loans you pay off with the proceeds of your new mortgage or home equity loan. Credit card companies use varying methods of calculating interest, but if you compare the rates you will pay for a home equity loan against the rates you are paying on your consumer accounts, you will likely see the savings before doing the math!
Got Equity? Cut up Those CardsRefinancing your home loan or taking out a home equity loan to consolidate your debts can help get you back on track financially. But if you continue to accumulate balances on your credit cards, you will not save money. Instead, you'll pay a larger mortgage, or two mortgages, while still carrying balances on your credit cards--so be sure to reduce your spending and stop acquiring more debt!
About the Author
Karen Lawson has more than fifteen years of experience in mortgage banking. She earned an MA degree in English from the University of Nevada, Reno.
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