If the credit collectors have called up a few too many times for comfort, you may be more than ready for debt consolidation. Debts might be on credit cards, store cards, or a car loan. Using your home's equity can help pay off debts or incorporate them onto one statement and collect your debt under one manageable interest rate instead of several and often higher rates. It may help you lower your monthly payment amount. Mortgage calculators are a good tool to use to check on possible savings. The interest on the loan is often tax-deductible, but you should check your eligibility with a qualified tax professional.

How Do You Access the Equity?
You can access the equity in your home for debt consolidation and other uses in three ways:

• Mortgage refinancing. You can replace an existing home loan with a new loan at a better rate or different term and take cash out. You just want to make sure that the monthly savings outweigh the fees of mortgage refinancing.
• Home equity loan. The dollar amount of the new loan is calculated by determining the difference between your home's fair market value and the debt from the original purchase.
• Home equity line of credit. You borrow against your home equity and can use a credit card or checkbook to access the money. The line of credit can be available over a length of time.

Additional Considerations on Debt Consolidation
Switching to a low mortgage rate will not reduce the total amount that you owe. Ideally, the best mortgage rate will be lower and reduce the payments you have to make. It's usually a great way to spread out your debt into more manageable payments.

Generally, interest rates for a home equity loan are higher than for your first mortgage. Lenders view debt consolidation as a higher "default" risk (when an individual is unable to make payments). If you are in a situation where you can pay neither loan, the first mortgage you arranged is always repaid first. Any remaining money would then be used to pay the lender for the debt consolidation loan. Undoubtedly, you will want to make sure that you get several mortgage quotes to compare for the best mortgage rate and loan offer.

Debts can seem insurmountable some days, but with the right rate, you can use your home's equity to put debt in its place.

Sources:

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