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Understanding Home Equity and Debt Consolidation

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For the great majority of people, the single largest investment they will make is the purchase of their home. Similarly since almost no one is able to afford the outright purchase of a home, their home loan or mortgage is also the largest debt undertaking they will make as well. This can be a daunting consideration to many. However, conversely as you continue to make mortgage payments you will also be accumulating value in the property that you own. This value can be used to your advantage.

What is Home Equity?

The calculation of your home equity is really quite simple. If you subtract the amount that you still owe on your home loan from the current market value of your home, you have the amount of your home equity. This equity benefits you in a number of ways. You can borrow against your home equity or refinance your home loan to gain access to some of it.

What is Debt Consolidation?

In the course of normal living in this day and age one seems to accumulate a chain of debt easily. Credit cards are one of the greatest sources of high interest debt but they are not the only one. In taking out small loans for this and that it is easy to get into a position where meeting the payments can become quite a challenge. One solution to this situation is debt consolidation. In this process you effectively take out one large loan to pay off many smaller debts. If you have enough home equity it is a very good option to refinance your mortgage or home loan and use that money to pay off the other debts. In addition to saving a considerable amount by refinancing to accomplish debt consolidation you will also typically enjoy a more manageable monthly payment.