Using Home Equity to Liquidate High Cost Debt

By Karen Lawson
Local Lender Columnist
Oct 22, 2007
Consumer credit frequently carries finance rates that exceed typical mortgage rates. Comparing annual percentage rates (APR) for home equity loans to consumer financing rates can help you decide if it's feasible to pay off consumer debt with a home equity loan or refinancing.

Home Equity Key to Borrowing Power

Approval for home equity loans is largely based on the amount of equity you have. This is calculated by subtracting the amount of mortgage loans from the amount your home is worth. Lenders may consider additional factors including your credit standing and risks associated with local real estate trends. Here are some things to think about if you're considering a home equity loan for debt consolidation:

• APR rather than interest rates: APR is the amount of all finance charges, including interest, stated on a yearly basis. For example, you may have a credit card with a rate of 9.95%, but its APR may be significantly higher when annual fees, late fees and other charges are calculated.
• Potential tax benefits associated with mortgage loans: Consult a financial advisor to see if converting consumer debt to a home equity loan can provide income tax benefits.
• Home equity debt consolidation may increase available monthly cash. This provides a great opportunity for reducing use of credit cards.
• Local Real Estate Trends: Keeping a cushion of equity can provide security against declines in property values. Contact North Carolina real estate professionals for information on market trends in your area.

Shopping for home equity loan terms and rates can help you find the best loan for your needs.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds a Master's degree in English from the University of Nevada, Reno.