Debt consolidation home equity loan

If you're house-rich but cash-poor, the equity in your home could be like money in your bank account, available to cover major expenses such as education, home improvements or debt consolidation. One of the most popular ways to borrow against your home is through a home-equity line of credit, a form of revolving credit in which your home serves as collateral. But be mindful that if you fail to repay the loan, you could lose the roof over your head.

With a home-equity line of credit, lenders generally set your credit limit by using a percentage--typically about 75 percent of the appraised value of the home, minus the balance owed on the existing mortgage. Say your home is appraised at $150,000; 75 percent of the appraised value is $112,500 ($150,000 x 75 percent); minus the mortgage debt of $60,000 will give you a potential credit line of $52,500.

Interest rates on home-equity credit lines differ, but are much lower than rates on personal loans and credit cards. And you may be allowed to deduct the interest from your taxes because the debt is secured by your home.

The costs involved in setting up a home-equity line of credit are similar to those paid when buying a home: * the fee for a property appraisal, which estimates your home's value; * the application fee, which might not be refunded if you are refused credit; * the up-front charges, such as points (a point amounts to one percent of the credit limit); and * fees for title search, property and title insurance, attorneys and mortgage preparation and filing, as well as taxes.

In addition, some lenders impose yearly maintenance fees and/or a transaction fee whenever you draw from the credit line. So shop around for terms that meet your borrowing needs. For general information, log on to "your money"@essence.com.

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