Is a home equity loan right for you?

By Michele Lerner
Mortgage Credit Problems Columnist

Using your home equity to pay off credit card debt may be an option, but before you commit your valuable property, be sure you have the discipline to avoid using your credit cards in the future. In addition, be aware that while defaulting on credit card debt hurts your credit score, the inability to pay your mortgage or home equity loan could lead to a foreclosure and the loss of your home.

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For home equity loans or bad credit mortgage refinancing, complete the form on this page to compare offers from several lenders.

Non-government lenders only refinance a maximum of 95 percent of a home's value, so you'll need more equity than five percent if you intend to wrap closing costs into a new loan, and you'll need a lot more if you want a cash-out refinance. Here are some options for accessing your home equity:

  • Home equity loans. Home equity loans allow you to take cash out of your home and repay it over time, typically at an interest rate lower than most credit cards. You may also get a tax deduction for the interest you pay. However, if your credit has been damaged by debt problems, this may not be an option for you. Fill out the form on this page to find out where you stand with home equity lenders.
  • Refinancing. A second way to access your home equity is with cash-out refinancing. You can pay off your credit card debt and wrap that payment into a new mortgage. However, while this will bring you debt relief, your mortgage payment may go up even if you lower your interest rate, depending on how much cash you take out. Another alternative is a mortgage refinance to lower your monthly payments, freeing up cash to pay down your credit card debt faster.
  • Reverse mortgage. A reverse mortgage is only be available to you if you are 62 or older and owe little or nothing on your home. Qualifying for a reverse mortgage depends on your age and home equity rather than your credit history. Some homeowners choose to pay off their current mortgage with a reverse mortgage in order to eliminate monthly payments. You can get your loan proceeds as a lump sum, monthly payments or a line of credit, but you must keep up with your property taxes and homeowners insurance payments.

Regardless of which way you choose to access your home equity, you need to commit yourself to a spending plan and avoid taking on new debt.

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