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If you are drowning in debt, you might want to consider consolidating your debt by refinancing your mortgage into a loan that carries a low-interest rate. If you have enough equity in your home, you can refinance your mortgage using part of your equity to pay off some or all of your high-interest debt. If you have a history of paying your monthly mortgage payment on time, you should have no trouble refinancing into a new mortgage with a very low rate.

Home Equity Loans- The Good and the Bad

As home values continue to recover from the Great Recession of 2008, more homeowners now find themselves with some equity in their homes. In the first quarter of 2014, homeowners tapped into nearly $23.4 billion in home equity through refinance loans and home equity lines of credit, according to U.S. News and World Report. The numbers in the first quarter of 2014 represented a 15.5 percent increase from the first quarter of the previous year. Homeowners often use the money from their home’s equity to pay down high-interest credit cards and other debt. If the interest rate on the new home equity loan is low enough and the homeowner does not face higher monthly mortgage payments, then debt consolidation using a home equity loan is a good choice.

However, if the mortgage meltdown and ensuing recession of 2008 taught homeowners anything, home equity loans can cause serious problems by borrowing more than you can afford. According to a report by CoreLogic, home equity loans and home equity lines-of-credit typically cause borrowers to owe more money than the value of their homes. To avoid this problem, real estate experts recommend that you should not take out a home equity loan for more than 20 percent of the equity in your home. Even if the interest rate is low on a new home equity loan, you are still borrowing against the current value of your home.

Home equity loans can be a smart way to consolidate all of your unsecured debt into one loan with a low-interest rate and low monthly payment. It is a wise tactic if you can avoid incurring new debt. The ease in which people can borrow would defeat the purpose of debt consolidation if you were to pay off your debt today only to incur new debt tomorrow. Remember that your home is collateral for a home equity loan, and if you do not make the payments, you put yourself in danger of losing your home.