Q. I have been receiving a lot of mail telling me how I can save hundreds of dollars every month by consolidating my debts with a home-equity-type loan. Is this really a good thing to do?
A. Home-equity loans can be helpful for certain types of homeowners. If you are saddled with debt on high-interest-rate credit cards, this type of loan can usually cut the interest rate you are paying by one-third to one-half.
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Such a loan may also lower the minimum monthly payment, which can ease the monthly burden of your debt. This might be especially helpful when minimum payments on credit cards go up in 2006.
Understand, however, that getting this type of loan now ties your debt to your house. If you don't pay your loan, the lender can take your house.
Q. Should I use a high-loan-to-value equity loan to refinance my home as well as my credit-card debt?
A. In most cases this would not be advisable. These types of loans, which allow you to borrow up to as much as 125 percent of the home's value, are expensive and leave you owing more than the home is worth -- a bad position to be in should you have to sell. Such rates may be lower than the rates on credit cards, but they are well above prevailing rates for conventional mortgages.
If your credit is good, you should be able to refinance your home at a much lower interest rate. If you need extra cash and have a fair amount of equity in your home, ask your lender if you can get a cash-out refinance loan, which allows you to borrow money at a lower interest rate.
