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Right now, we're facing a consumer debt situation that's honestly pretty overwhelming for a lot of American families. According to the Federal Reserve Bank of New York's Q4 2024 Household Debt and Credit Report, Americans collectively owe $1.21 trillion on their credit cards. That's not a typo — $1.21 trillion with a "T."
Here's what this means for you: credit card interest rates averaged 22.83% in Q3 2025, based on Federal Reserve G.19 Consumer Credit data. When you're paying that kind of interest, your monthly payment barely touches the principal. You're essentially running on a financial treadmill.
I see this playing out every day in our project management work at AmeriSave. The human side of this debt crisis isn't just numbers — it's families making impossible choices between paying down credit cards or covering basic needs.
Meanwhile, homeowners are sitting on approximately $34 trillion in home equity collectively, according to Federal Reserve data from end of 2024. The average homeowner has around $300,000 in equity. For many people, their home equity represents a genuine path out of debt — but only if they use it correctly.
What Exactly Is a Home Equity Loan for Debt Consolidation?
Think of it like this: a home equity loan is basically borrowing money from yourself. You're tapping into the equity you've already built up in your home over years of making mortgage payments. The lender gives you a lump sum based on how much equity you have, and you use that money to pay off your high-interest debts.
It's a second mortgage with a fixed interest rate. But really, it's a financial tool that lets you swap expensive debt for cheaper debt. Instead of juggling five credit card payments at 20%-plus interest, you make one fixed monthly payment at roughly 8% interest, according to Bankrate's October 2025 national survey.
At AmeriSave, we structure these loans to give homeowners predictable payments they can actually plan around. No surprises, no variable rates jumping around. That stability can be a game-changer when you're trying to get your financial life back on track.
If you're ready to explore how a home equity loan could work for your situation, AmeriSave offers flexible options for both primary and secondary homes with competitive rates and transparent pricing.
Okay, so here's what happened when I walked a colleague through this recently. She had $35,000 spread across four credit cards averaging 21% interest. Her minimum payments totaled $875 per month, but she was barely making progress on the principal.
Here's the math breakdown.
Loan amount: $35,000
Time to pay off: 15 years
The difference is staggering. She'd save about $128,700 in interest and cut her monthly payment by $540. That's real money that could go toward retirement savings, her kids' education, or just breathing room in the monthly budget.
But here's the catch nobody tells you upfront — you need to account for closing costs. Home equity loans typically cost 2-5% of the loan amount in fees. On a $35,000 loan, that's potentially $700 to $1,750. You're still saving a massive amount, but you need to factor those costs into your calculations.
This is the scary part, and I'm not going to sugarcoat it. When you take out a home equity loan, you're putting your house on the line. If you lose your job or can't make the payments for any reason, the lender can foreclose on your home.
I remember this one conversation during our acquisition process where we reviewed hundreds of foreclosure cases. What stuck with me was how many started with good intentions — people trying to get ahead financially — but then life happened. Medical emergency, job loss, unexpected divorce. Things that felt stable suddenly weren't.
So before you even start the application, ask yourself honestly: Is my income stable? Do I have an emergency fund? Can I handle these payments even if something goes wrong? If the answer to any of those is no, this might not be the right move.
Most lenders want you to keep at least 15-20% equity in your home after you take out the loan. This means if your home is worth $300,000 and you owe $200,000, you have $100,000 in equity. But you can only borrow against 80-85% of your home's value, minus what you owe.
If your debts total $60,000, you're out of luck unless you can come up with the difference another way or work on paying down your mortgage first.
Here's where things get interesting. Different lenders have different standards. Some require a minimum credit score of 620, while others want to see 680 or even 740 for the best rates.
At AmeriSave, our home equity loan product has tiered requirements based on our current guidelines effective February 2024: 680 minimum FICO for 80% LTV, 700 minimum for 85% LTV, and 740 minimum for 90% LTV. Your debt-to-income ratio also needs to be 50% or below.
What this means for you is that if your credit took a hit from all those high credit card balances, you might not qualify right now. The good news? Paying down some of those cards — even a little — can boost your score enough to qualify within a few months.
Your DTI ratio is basically all your monthly debt payments divided by your gross monthly income. Lenders typically want this below 43-50%.
Here's an example:
But if you add a $335 home equity loan payment and subtract the paid-off credit card minimums:
In this case, your DTI actually improves because you're replacing higher payments with a lower one. But if your DTI is already borderline, adding another loan might push you over the limit.
Nobody likes talking about fees, but they're real. You'll typically pay:
On a $40,000 home equity loan, you might pay $1,500-2,000 in closing costs. Some lenders roll these into the loan amount, which means you're paying interest on them for 10-15 years. Others require you to pay them upfront.
At AmeriSave, we try to keep these costs competitive and transparent, so there aren't surprises at closing. But you need to add these to your calculations when you're figuring out whether consolidation actually saves you money.
One of the best features of home equity loans is that the rate is fixed. Whatever rate you lock in today stays the same for the entire 10-, 15-, or 20-year term. According to Bankrate's survey from late October 2025, the average rates are 8.02% for 5-year loans, 8.21% for 10-year loans, and 8.10% for 15-year loans.
This is huge when you compare it to credit cards with variable rates that can jump anytime. Even
if rates drop in the future — and you might want to refinance then — at least you're protected from rates going up.
Here's something that doesn't get enough attention: when you consolidate, you often extend how long you'll be in debt. If you had 3 years left on your credit card payoff plan but you take out a 15-year home equity loan, you're potentially adding 12 years of debt.
Yes, your monthly payment is lower. Yes, you're paying less interest overall. But you're also pushing that debt out further into your future. For some people, that's fine — the monthly cash flow relief is worth it. For others, it feels like they'll never be debt-free.
My suggestion? If you can afford it, make extra principal payments on your home equity loan. Even an extra $100 a month can shave years off your repayment and save thousands in interest.
The interest you pay on a home equity loan may be tax-deductible, but there are rules. According to IRS Topic 505, you can only deduct the interest if you use the loan to buy, build, or substantially improve your home.
If you're using it for debt consolidation? Not deductible. If you're using half for home improvements and half for debt payoff? Only the home improvement portion qualifies.
This is where people get tripped up. They hear "tax-deductible home equity loan" and assume they can write off all the interest. Check with a tax professional before you count on any deductions.
This is the part that keeps me up at night as someone pursuing a social work degree. If you consolidate your debt but don't change the spending behaviors that got you there, you're just delaying the inevitable.
I've seen people pay off their credit cards with a home equity loan, then run those cards back up within two years. Now they have the home equity loan payment plus new credit card debt. That's catastrophic.
Before you consolidate, you need a real plan for how you'll manage money differently. Maybe that's working with a financial counselor, using a budgeting app, or cutting up the credit cards. Whatever it takes to ensure you don't end up in a worse position than where you started.
Your home's appraised value determines how much equity you can access. If you bought your house in a hot market and values have since cooled, you might have less equity than you think.
According to Federal Reserve data, median home prices have increased significantly over the past decade, but local markets vary. In some areas, prices have been flat or even declining recently.
If your home appraises lower than expected, you might not qualify for enough money to cover all your debts. That's why it's smart to get a realistic estimate of your home's current value before you apply.
Debt consolidation with a home equity loan isn't the only path. Depending on your situation, you might be better served by:
Cash-out refinance: If current mortgage rates are close to what you're already paying, you could refinance your primary mortgage for more than you owe and use the difference for debt payoff. You'd only have one mortgage payment.
HELOC: A home equity line of credit works like a credit card secured by your home. You only borrow what you need and only pay interest on what you use. Rates are variable, though — currently around 7.75% according to Curinos data from November 2025.
Personal loan: Unsecured personal loans don't put your home at risk. Rates are higher, averaging 12.36% according to recent data, but you're not risking foreclosure.
Balance transfer card: Some credit cards offer 0% APR for 12-18 months on balance transfers. If you can pay off the debt during that window, this might be the cheapest option.
Not all lenders offer the same products or have the same standards. Some specialize in borrowers with excellent credit and lots of equity. Others work with people who have lower credit scores but need more flexibility.
At AmeriSave, we offer home equity loans for both primary and secondary homes, with requirements that take into account the whole picture — not just your credit score. It's worth shopping around and comparing at least 3-4 lenders to see who can give you the best terms.
Alright, so you've decided this is the right move for you. Here's exactly what the process looks like.
Start by figuring out where you actually stand. You need three numbers:
Example:
Pull your credit reports from all three bureaus. You can do this free at AnnualCreditReport.com.
Even improving your score from 640 to 680 can make a difference of half a percentage point on your rate, which adds up over 15 years.
Having everything organized speeds up the process dramatically.
Don't just go with the first offer. Talk to:
Compare the interest rate, but also look at:
Most lenders now offer online applications that take 15-30 minutes. You'll answer questions about:
At this point, the lender will do a hard credit pull, which might temporarily drop your score by a few points. Multiple inquiries for the same loan type within 45 days count as one inquiry, so don't worry about rate shopping.
The lender will order an appraisal to verify your home's value. An appraiser will visit your property and compare it to recent sales of similar homes in your area. This usually costs $300-500 and takes 1-2 weeks.
If your home appraises lower than expected, you might need to adjust your loan amount or provide additional documentation to support the value.
Once approved, you'll receive a Closing Disclosure at least three business days before closing. T
Read everything carefully. If something doesn't match what you were quoted, speak up immediately.
At closing, you'll sign the final paperwork and the lender will fund your loan. Depending on your state, you might have a three-day right of rescission period before the money is disbursed.
Critical step: Use the money to immediately pay off the debts you consolidated. Don't let it sit in your checking account "just in case." The whole point is to eliminate those high-interest debts, so pay them off completely and request confirmation that the accounts are closed or at zero balance.
Let me make it very clear when you should not use a home equity loan to pay off other debts:
If your income isn't stable, you might want to look for gig work, commission-based sales, or a job in an industry that is laying off workers. You need a steady income to get a loan that is backed by your home.
What would happen if your roof leaks or your car dies after you consolidate and you don't have an emergency fund? You can't charge those costs to the credit cards you just paid off. Before you add a second mortgage payment, you should have enough money saved to cover 3 to 6 months' worth of bills.
If you haven't dealt with the real issue, debt consolidation won't help you stop spending too much; it's just a way to lower your interest costs. If you're not willing to change how you handle your money, things will only get worse.
If you're going to move soon, know that home equity loans come with closing costs. If you sell your house in two years, you probably won't be able to get back those costs by saving on interest.
If your home's value is going down: It is risky to take out more debt secured by your home in areas where home prices are going down. If you owe more on your mortgage than your house is worth, you won't have many choices.
This is what it means for you as a person, not just as a business. Debt isn't just numbers on a screen; it's stress that makes it hard to sleep, hurts your relationships, and makes you feel bad all the time. We talk a lot in my MSW classes about how money problems are one of the main causes of family fights.
I can feel the relief when I see someone successfully consolidate their debt and cut their monthly payments in half. Not only are they saving money, but they're also lowering their stress, making their marriage stronger, and spending more time with their kids.
But that only works if you plan ahead. Debt consolidation shouldn't just be like moving deck chairs around on the Titanic; it should feel like a new beginning. You need to be honest with yourself about why you owe money and what needs to change in the future.
It's important to know that home equity loans work differently in different places. Homeowners in expensive places like California or the Northeast might have a lot of equity even after owning their homes for a short time. It takes longer to build up enough equity in places where home values haven't gone up as much.
For example, home prices in Louisville have gone up steadily but not too much compared to coastal markets. That means homeowners need to think more carefully about when they use their equity. You might have more options in markets where prices are rising quickly.
Some states also have special laws to protect consumers when they lend money against their homes. Be sure you know the rules where you live.
So, after all this information, here's what you need to do: make the right choice for your situation. Home equity loans for debt consolidation can be very helpful, but they aren't magic fixes.
They are best for people who:
They don't work well for people who:
Be honest with the numbers before you apply. Add up all of your costs, including fees, and compare your interest savings to make sure you're actually ahead. And most importantly, make sure you have a real plan for how to stay out of debt after you've consolidated.
AmeriSave has competitive home equity loan options with flexible credit requirements and clear pricing if you decide this is the right choice for you. We can help you figure out exactly what you can get and how much it will cost, so there are no surprises at closing.
You're serious about your finances if you've gotten this far, and that's the right attitude to have if you want to successfully consolidate your debt. Home equity loans aren't for everyone, but they can change the lives of homeowners who have a steady income, a lot of equity, and a desire to change their spending habits.
We at AmeriSave help homeowners get to their equity through simple, clear home equity loans. We want our process to be clear and quick, with rates that are competitive and qualification standards that are flexible and take into account your whole financial picture, not just your credit score.
You need to be honest with yourself about whether this is the right thing to do for you. Figure out your numbers, know the risks, and make sure you have a real plan for staying out of debt after you've consolidated. If you do those things, a home equity loan to pay off debt can help you save money, lower your stress, and build a better financial future.
The three main things that affect how much you can borrow are your home's current market value, the amount you still owe on your mortgage, and your lender's maximum loan-to-value ratio, which is usually between 80 and 85%. To figure this out, take the value of your home and multiply it by the highest LTV ratio. Then, take away the amount you still owe on your primary mortgage. If your home is worth $300,000 and you have a maximum LTV of 85%, you could get up to $255,000 minus what you still owe on your mortgage. So, if you owe $200,000, you would have about $55,000 in equity that you could use. When deciding how much money to lend you, lenders also look at your credit score, debt-to-income ratio, and how stable your income is. We at AmeriSave look at your whole financial situation to figure out how much you can borrow without putting your financial stability at risk. Remember that you shouldn't borrow more than you need to pay off your high-interest debts. Just because you can borrow a certain amount doesn't mean you should.
A home equity loan gives you a lump sum payment all at once with a fixed interest rate and monthly payment for the whole time you have to pay it back, which is usually ten to fifteen years. You know exactly how much you'll have to pay each month and when the loan will be paid off. A HELOC is more like a credit card because it gives you access to a line of credit that you can use whenever you need it during a draw period, which is usually 10 years. You only pay interest on the money you borrow, and the interest rate is usually variable, which means it can change based on how the market is doing. Home equity loans are often better for debt consolidation because they make you borrow a certain amount, pay off your debts right away, and then focus on paying back that one fixed loan. It's easy to keep borrowing against a HELOC, which goes against the whole point of debt consolidation. The variable rate on HELOCs can also be risky because if rates go up, your payment could go up a lot. A HELOC might be a good idea if you need flexibility or aren't sure how much money you'll need. Recent data from late 2025 shows that HELOC rates are around 7.75–7.90%, which is a little lower than home equity loan rates. However, keep in mind that HELOC rates can change over time, while home equity loan rates stay the same.
It usually takes three to six weeks to get a home equity loan, from the time you apply until the time you close. However, this can vary depending on a number of factors. If you have all your paperwork ready, the first application usually takes between 15 and 30 minutes. The lender then looks over your application and does a first credit check, which usually takes between two and five business days. Next is the home appraisal, which can take the longest. Depending on how available the appraiser is in your area, it can take one to three weeks to schedule the appraisal, do the inspection, and get the report. After the lender gets the appraisal, they look over your finances in full, which takes another three to seven business days. Finally, there's the closing process, during which you go over and sign papers. This can be set up within a week of getting final approval. We at AmeriSave try to make this process as easy as possible and keep you updated at every step. However, some steps just take time and rely on other people, like appraisers and title companies. You can speed things up by getting all of your financial papers in order before you apply, answering any questions your lender has right away, and being there for the home appraisal when it's scheduled. If you need things done quickly, ask your lender ahead of time about their usual timeline and whether they offer expedited processing.
When you first apply for a home equity loan, your credit score might go down a little because the lender will do a hard credit inquiry, which usually makes your score drop by a few points for a short time. But in the medium and long term, debt consolidation usually helps your credit score for a number of reasons. First, paying off your credit cards lowers your credit utilization ratio, which is the amount of available credit you're using. This is about thirty percent of your credit score. When you pay off cards that were maxed out or had high balances, your utilization goes down to zero on those accounts. This usually raises your score in thirty to sixty days. Second, having one fixed loan payment instead of several revolving credit card payments can help your debt-to-income ratio and the consistency of your payment history. Third, keeping those credit card accounts open but not using them after you pay them off helps your credit by increasing your available credit and keeping your credit history long. The most important thing is to not close those credit card accounts after you pay them off, unless they charge you an annual fee. You should also not add new balances to them. One mistake I see people make is combining their debts and then closing all their credit cards. This hurts your score because it lowers your available credit and may shorten your credit history. If you don't take on any new debt and make all of your home equity loan payments on time, most people will see their credit scores go up by 20 to 50 points within three to six months of successfully consolidating their debt.
Before getting a home equity loan, you need to know the answer to this question because the results are serious. The lender can take your home if you don't make payments on time, which means they have a legal right to do so. The process of foreclosure is different in each state, but it usually starts after you've missed three to six monthly payments. First, you'll get notices of late payments, and the lender will try to get in touch with you to find a solution. If you keep missing payments, the lender will send you a formal notice of default, usually after ninety days. You only have a short amount of time—usually between thirty and ninety days, depending on state law—to bring your loan up to date or work out a different deal. If you can't work things out, the lender will start the foreclosure process. This can be judicial, through the court system, or non-judicial, following the steps laid out in your loan documents, depending on your state. The process of foreclosure can take anywhere from a few months to more than a year. During this time, your credit score will drop a lot, and you could lose your home. This is why you should only get a home equity loan if you are sure you can pay it back. You do have options before it goes into foreclosure. If you're having trouble, call your lender right away. Many lenders will work with you on forbearance, loan modification, or repayment plans if you let them know early. If your financial situation has changed, you might want to refinance. If you have enough equity to pay off both loans, you might want to sell your home before foreclosure. You can also talk to a HUD-approved housing counselor who can help you figure out your options. The worst thing you can do is pretend the problem doesn't exist and wait for it to go away. Lenders would rather help you find a way out than go through the costly and time-consuming process of foreclosure.
The Tax Cuts and Jobs Act of 2017 made big changes to how home equity loan interest can be deducted from taxes. Many homeowners still don't understand this. Right now, you can only deduct the interest on home equity debt if you use the money you borrowed to buy, build, or make major improvements to the home that secures the loan. The interest is not tax deductible if you use the money for anything other than fixing up your home, like paying off debt, going to college, or buying a car. IRS Publication 936 and Topic 505 say that "substantial improvements" are things like adding a room, finishing a basement, replacing a roof, or doing a big kitchen remodel. Regular maintenance and repairs don't count. You can only deduct the part of your home equity loan that you used to make improvements. If you used some of it to pay off debt, you can't deduct that. You can only deduct interest on up to $750,000 of combined mortgage debt, or $375,000 if you are married and filing separately, if you took out the loans after December 15, 2017. This is the same limit as your primary mortgage. If you took out a loan before that date, the limit is $1 million in total debt or $500,000 if you are married but file separately. Also, you can only take the deduction if you list your deductions instead of taking the standard deduction. With the higher standard deduction amounts—$13,850 for single filers and $27,700 for married filing jointly in 2023—many taxpayers find that itemizing doesn't make sense anymore. In the end, you shouldn't expect any tax breaks from a home equity loan used to pay off debt. If you want to be able to deduct the interest from your taxes, you'll need to use the money for home improvements that qualify and keep track of how you spent it. Tax law is complicated, and everyone's situation is different, so you should always talk to a tax professional about your own situation.
You can use both home equity loans and cash-out refinances to pay off debt, but they work in very different ways and are better for different situations. You will have to make two separate monthly payments if you take out a home equity loan, which is a second mortgage on top of your first mortgage. It doesn't change the terms or rate of your current mortgage. Recent data from late 2025 shows that home equity loan rates are around 8.02% to 8.10% for different terms. A cash-out refinance, on the other hand, gives you a new, bigger mortgage that pays off your old one. You get the difference in cash to use to pay off your debts. You only have to make one mortgage payment, but it's at the current market rate. For thirty-year fixed-rate loans, mortgage rates are above six percent as of late 2025. If your current mortgage has a low interest rate from a few years ago, like three or four percent, a cash-out refinance would mean giving up that great rate and paying a higher rate on the whole mortgage balance, not just the new money you're borrowing. In that case, a home equity loan is better because you keep your first mortgage at a low rate and only pay the higher rate on the smaller home equity loan amount. But if your current mortgage rate is already high or you want to make your payments easier, a cash-out refinance might be better. You'd only have to make one payment instead of two, and you might be able to get a slightly lower rate on the cash-out part since it's part of your main mortgage. Because they are the first lien holders, cash-out refinances usually have lower interest rates than home equity loans. This means that if there is a foreclosure, they will be paid first. The bad news is that cash-out refinances usually cost more to close and take longer to process. We can help you look at both options and do the math to find out which one will save you more money over time, based on your current mortgage rate and financial situation.
How much money you save by consolidating your debts depends on a number of things, such as the interest rates on your current debts, the interest rate you can get on your home equity loan, how long it will take you to pay off the debt, and the closing costs of the home equity loan. Let me show you a real-life example. For example, if you have $30,000 in credit card debt and the average interest rate is 22%, which is close to what it is now. If you only pay the minimum of about $750 a month, it would take you about 19 years to pay off the debt and you would pay about $141,000 in interest. That means your $30,000 debt would actually cost you $171,000. If you combine that same $30,000 with a fifteen-year home equity loan at 8.10 percent, which is the average rate right now, your monthly payment would be about $288, you would pay it off in exactly fifteen years, and you would pay about $21,840 in interest. You also need to take away the closing costs, though. That's $900 if closing costs are three percent of the loan amount. Your total cost is $21,840 in interest plus $900 in fees, which comes to $22,740. You saved about $118,260 over fifteen years, which is $141,000 minus $22,740. Your monthly payment goes down from $750 to $288, which saves you $462 a month in cash flow. These are big savings, which is why debt consolidation can be so helpful for people who have a lot of high-interest debt. But here's the important part: you can only save money if you don't get into more credit card debt after you consolidate. If you use a home equity loan to pay off your credit cards and then max them out again, you'll have to pay both the home equity loan and the new credit card debt, which is worse than where you started. To make consolidation work, you need to use it as a one-time reset and make real changes to how you spend and budget your money.
Most lenders want your credit score to be between 620 and 680 for home equity loans. But the better your credit, the better your interest rate and loan terms will be. At AmeriSave, the requirements for our home equity loan depend on how much you want to borrow compared to the value of your home. To get a loan with a value-to-loan ratio of 80%, you need a FICO score of at least 680. You need at least a 700 FICO score to be able to borrow up to 85% of the value of your home. To get up to 90% of your home's value, you need a credit score of at least 740. The lender wants to see stronger credit because the loan is riskier for them the higher the LTV ratio is. Higher credit scores can save you a lot of money on interest, not just the minimum score. Someone with a 740 credit score might get an interest rate that is half a percentage point to a full percentage point lower than someone with a 650 credit score. Over the course of fifteen years, that difference can add up to thousands of dollars. If your credit score doesn't meet these standards, you have a few choices: you can wait and work on improving your credit by paying off debt, disputing mistakes on your credit report, and making all of your payments on time; you can look into lenders that work with borrowers with lower credit scores, but be ready to pay higher interest rates; or you can look into government-backed options like an FHA cash-out refinance, which may have less strict credit requirements. Also, keep in mind that credit scores are only one part of the picture. Lenders also look at your debt-to-income ratio, employment history, income stability, and how much equity you have in your home. Sometimes a borrower with a lower credit score but a stable job and low debt can get approved when someone with a higher score but a shaky job or a high debt-to-income ratio might not.
You shouldn't close your credit cards after paying them off with a home equity loan in most cases. Here are some good reasons why. First, closing credit card accounts lowers the amount of credit you have available, which raises your credit utilization ratio, which is one of the most important things that make up your credit score. Even if you don't use those cards, having them open with no balances shows lenders that you have credit available and are choosing not to use it, which is a good sign. Second, closing accounts shortens your credit history, especially if some of those cards are your oldest ones. Your credit score is made up of about 15% of the length of your credit history, so closing old accounts can hurt your score. Third, having a mix of different types of credit, like installment loans (like your mortgage) and revolving credit (like cards), can actually help your credit score. However, there are times when it makes sense to close cards. For example, if the card has an annual fee and you're not using it enough to make that cost worth it, close it; if you know you don't have the discipline to keep the card without using it and you're worried about getting into more debt, close it; or if the card is from a subprime lender with bad terms and you've since qualified for better cards, you might close it. But for most people, the best thing to do is to keep the cards open and cut them up or freeze them if you're worried about being tempted. You could also use them once every six months to buy something small and pay it off right away to keep the account active. I know this seems strange—you just paid off these cards with your home equity loan, and now I'm telling you to keep them open? — but for your credit score and financial flexibility, it's almost always best to keep them open but not use them. The most important thing is to have the self-control not to charge them up again. If you really don't trust yourself, closing them might be worth the hit to your credit score for your peace of mind and financial security.
You can still sell your house even if you have a home equity loan, but it makes things a little more complicated. You have to pay off all the liens on your home when you sell it. This includes both your first mortgage and your home equity loan. The amounts you have to pay off come straight from the money you make from the sale, before you get any equity. If your home sells for $400,000, you owe $200,000 on your first mortgage and $50,000 on your home equity loan. Your selling costs, which include real estate commissions and closing costs, are $24,000. To figure out how much money you would make, you would take $400,000 and subtract $200,000, $50,000, and $24,000. That would leave you with $126,000. It gets complicated if your home's value has gone down or if you took out the home equity loan not too long ago. In those situations, you might owe more on both loans than your home is worth. This is called being "underwater" or having negative equity. Or the money from the sale might not be enough to pay off both loans and the costs of selling. If that happens, you'll need to bring cash to the closing to make up the difference, which can be a big financial strain. If you plan to sell your home in the next few years, you shouldn't take out a home equity loan because the closing costs you paid to get the loan won't be covered by the interest savings, and if the value of your home goes down, you could be stuck. Timing is also important: most home equity loans have a "seasoning period" of at least a year before you can refinance or sell without paying a penalty. Some lenders charge a fee, usually one to two percent of the loan balance, if you pay off the loan within the first few years. Check your loan documents to see if this is the case. In short, you can sell your house with a home equity loan, but you need to make sure that after paying off both loans and the costs of selling, you'll have enough money left over to meet your goals, whether that's a down payment on your next home or other financial needs. Before you put your house up for sale, make sure you do the math.
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