You may discover that you have more equity in your home than you thought. The Office of Federal Housing Enterprise Oversight (OFHEO) house price index, has reported the largest one-year increase in property values since the 1970’s. U.S. house prices have shown an annual rise of 9.36%. Your home might have risen in value.

You can tap into this valuable home equity to pay off high interest debts such as your credit cards. Here’s how it works: A loan with a single monthly payment can be used to pay off a number of debts; this is called debt consolidation. There can be a double advantage in doing this: you can pay off your loan faster as well as save money, especially if you get a low mortgage rate. Additionally, the interest you pay is often tax deductible. (Please consult your tax adviser.)

If you do have equity in your home and want to consolidate your debt you have two options:

Home Equity Loan
If you think you’re the only one with spiraling debt and you need a way out, you are not alone. According to the United States Census Bureau, 8,120,689 households have either a second mortgage or a home equity loan to help ease the load. If the value of your home has risen significantly, or you have paid off a large proportion of your mortgage, you may be able to utilize the equity in your home for debt consolidation.

If you are thinking about using your home equity as a debt consolidation vehicle, the following tips may help you:

• Avoid more debt: While you have a home equity loan, avoid exposing yourself to further debt in any form, e.g. credit cards.
• Decrease your living expenses: Practice living on a lower income and change your spending habits as much as possible so you know what you can cope with, before applying for a home mortgage quote.
• Shorten your loan term: You may save more money in the long run if you shorten your loan term. Even if you think you have found the best mortgage rate, it is still worth using mortgage calculators and gathering as much mortgage information as you can.
• Keep your loan under the value of your home: Be careful about taking out mortgage loans that add up to more than the value of your home. If you cannot keep up repayments on a mortgage, you may lose your home. Also, in this scenario, you may not be able to deduct all the interest.
• Avoid “too good to be true” offers: If a home loan mortgage quote seems too good to be true – it probably is. Many offers include high closing costs and/or fees associated with linking credit cards to your home equity. These additional costs can eat into any savings you realize from a low mortgage rate and may make the whole exercise pointless.
• Check your credit rating and credit reports: It is essential that your credit reports are accurate. If they are not, you may be denied a loan or not get the best mortgage rate. Check your credit rating and credit reports and get them corrected if necessary before applying to a lender.
• Shop around for the best deal: Just like any other costly purchase, shop around to get the best mortgage rate and overall deal. You would not buy the first vehicle you saw without checking out others first, so don’t do it with a home mortgage.

Refinanced Mortgages
Interest rates are currently very favorable. If they are lower than your current mortgage interest rate and your existing mortgage loan balance is lower than your home’s current value, you might want to think about mortgage refinancing. If you would like to increase your available cash flow, refinancing your existing mortgage loan may significantly reduce your monthly mortgage payment. Mortgage refinancing can also help you save on the total cost of your mortgage over the life of the loan.

If you are thinking about using mortgage refinancing as a debt consolidation vehicle, the following tips may help:

• Check your credit rating and credit reports: It is essential that your credit reports are accurate, if they are not, you may be denied a loan or not get the best deal available. Check your credit report from all three of the major credit bureaus before applying to a lender.
• Get a lower rate: You can save thousands of dollars in interest if you can afford to continue to make the same monthly payments, but with a lower mortgage rate. Making the same payment amount on a lower interest loan will help you pay off the principal balance more quickly. The sooner you are able to pay off the principal, the more money you will save in interest. 
• Shop around for the best deal: With interest rates so low, most lenders are looking for business. This puts you in a good position to be able to negotiate on items like points and fees. Make sure to shop around with multiple lenders for mortgage loan offers.
• Save cash: If you are short on cash and are having trouble coming up with the money for closing costs, you may want to inquire about the possibility of adding the closing costs to the loan amount.

Sources:

United State Bureau of the Census, 2000
(American Factfinder, supplementary survey 2000).