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Comparison Guide Home Equity Debt Consolidation

Total Interest Comparison: Keep Paying Minimums vs Home Equity Consolidation

Dom Bounasissi |
High-interest credit card debt can feel like a weight you can't shake. With average credit card APRs hovering around 20-25%, even moderate balances cost hundreds in monthly interest alone. Your home equity might offer an escape route - at 7-9% interest instead of 20%+ - but it's not without considerations. Trading unsecured debt for secured debt requires careful planning and commitment to changing spending habits. This guide will walk you through everything you need to know about total interest comparison: keep paying minimums vs home equity consolidation. ## The Core Differences ## Making the Right Choice Your existing low mortgage rate is a valuable asset. On a $300,000 mortgage, the difference between 3.5% and 7.5% is $850/month - that's $10,200 per year. Second mortgages let you access equity without sacrificing that value. Yes, you'll pay more on the second lien (7-9% range), but your blended effective rate across both mortgages still beats refinancing your entire balance at today's higher rates. Do the math: calculate your total monthly payment with a second mortgage versus a cash-out refinance, then multiply by 12 months and by 5 years. The second mortgage typically saves tens of thousands. Using home equity to eliminate credit card debt can save thousands in interest annually - $20,000 in credit card debt at 22% costs $4,400/year in interest alone. The same $20,000 on a home equity loan at 8.5% costs $1,700/year. That's $2,700/year in savings. But here's the critical part: you're converting unsecured debt (credit cards can't take your house) into secured debt (this lender can). If you don't address the spending patterns that created the credit card debt, you'll end up with a home equity loan payment AND new credit card balances - a far worse position. **Success strategy**: Cut up the cards, shift to debit/cash only, and build a 3-month emergency fund before considering any new credit. Treat debt consolidation as a one-time reset, not an annual strategy. ## Your Next Steps Don't rush into home equity financing without understanding your full picture: 1. **Calculate your available equity**: Use the formula (Home Value × CLTV Limit) - First Mortgage Balance. Most lenders cap at 80-90% CLTV. 2. **Evaluate your DTI**: Add up all monthly debt payments including the new loan payment, divide by gross monthly income. Aim to stay under 43-45% for comfortable budgeting. 3. **Get multiple quotes**: Rates and terms vary significantly between lenders. A 0.50% rate difference on $50,000 over 15 years costs/saves $3,000+. 4. **Understand the total cost**: Calculate total interest paid over the loan term, not just monthly payment. That helps you evaluate if the expense justifies the long-term debt. 5. **Have a repayment plan**: Especially for variable-rate HELOCs, know how you'll pay it down within 5-7 years rather than letting it linger at minimum payments. The right home equity strategy depends on your specific goals, risk tolerance, and financial situation. Take time to understand your options, run the numbers honestly, and choose the path that serves your long-term financial health - not just your immediate cash needs. --- *This information is for educational purposes only and does not constitute financial or legal advice. Loan terms, rates, and requirements vary significantly by lender, borrower qualification, and geographic location. Always consult with a licensed mortgage professional to discuss your specific situation and obtain personalized guidance. Interest rates, program guidelines, and market conditions are subject to change without notice.*

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