# Using a Home Equity Loan for Debt Consolidation

## Using a Home Equity Loan to Consolidate Debt

How to use a home equity loan to consolidate debt? More importantly, how do you choose between these two options when use home equity consolidate debt?

Let’s take an example, knowing that Rocket Mortgage® allows borrowers with a high credit rating to borrow approximately 90% of their home equity.

Kristen wants to consolidate her student loans and credit card debt.

First, she determines how much of her home equity she can tap into by determining her loan-to-value (LTV) ratio. She calculates her LTV by subtracting the remaining balance of her 90% primary mortgage from the appraised value of her home. In this case, Kristen’s home is valued at \$300,000 and her remaining mortgage balance is currently \$150,000.

\$300,000 x 0.9 = \$270,000

\$270,000 – \$150,000 = \$120,000

In this example, Kristen could borrow \$120,000 to consolidate her debt.

Next, she must decide if she wants a home equity loan or a HELOC. In this case, she decides to go for a home equity loan based on the type of loan she has – student loans and credit card debt. A lump sum will help her take care of her student loans all at once.

If she wanted to consolidate debt, but also use funds to renovate, a HELOC would be a good option because she could spend the money as needed.