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Should You Use a Home Equity Loan, HELOC or Cash Out Refinance to Consolidate Your Debts?

Home Equity Line of Credit Calculator

Do you currently carry high interest revolving credit on credit cards, cars & other personal loans? You may be able to leverage a home equity line of credit (HELOC) to lower your monthly debt payments. Lenders typically allow borrowers to receive up to 80% of their home equity, though the precise LTV limit will depende on broader market conditions, your credit score and how valuable your customer relationship is to the bank.

We list current Cambridge HELOC & home equity loan rates as well as current Cambridge mortgage rates to help you perform your calculations and select a lender.

Home Equity Loan Details Amount
Loan Term: (Yrs)
Closing Costs: ($)
Interest Rate: See Current Cambridge Rates (%)
Federal Income Tax Rate: (%)

Understanding the Income Tax Implications of Tapping Home Equity

Prior to the passage of the Tax Cuts and Jobs Act of 2017 interest on up to $100,000 of second mortgage debt via home equity loans or HELOCs was tax deductible no matter how the money was used. The law changed how mortgage debt is treated based on how loan proceeds are used.

Home equity debt which is taken out to pay for things other than making substantial improvements to the home (which improve the basis of the home) is no longer tax deductible, as it is not considered acquisition indebtedness.

If you are not using the HELOC or home equity loan to improve or expand the dwelling or you do not plan on itemizing your income taxes please set your federal tax rate to zero to remove income tax breaks from your calculation.

Debt Amount Payment Interest (%)
Auto Loan:
Credit Card 1:
Credit Card 2:
Other Debt:
Personal Loan:
Above Totals:

When is Interest on Second Mortgages Considered Tax Deductible?

If home equity debt is taken on in a format which is considered origination indebtedness then interest on the loan may be considered tax deductible. In general things which qualify as origination indebtedness include money used to acquire, build, or substantially improve the primary residence that secures the loan.

IRS publication 936 explains how the home mortgage interest deduction works. It is important to keep your receipts on your improvement purchases in case you are audited. Please speak with your accountant if you have questions about what types of home improvements qualify.

 

Optional: Compare HELOCs & Home Equity Loans vs Cash Out Refinancing

The following section is optional & only needs to be filled out if you are considering between a HELOC and a cash-out refinance. Once you submit your calculation, variables from it are passed into our Cambridge cash out refi rates table below so you can compare adding your current mortgage payment to a second mortgage payment versus doing a cash out refinancing.

(Optional) Cash Out Refi Info Amount
Appraised Home Value: ($)
Current Home Equity: ($)
Enter Any Additional Cash Out Beyond Above Listed Debts: ($)
New Mortgage Amount (based on above): ($)
Refinance Loan Term: (Years)
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Cambridge Homeowners: Leverage Your Home Equity Today

Our rate table lists current home equity offers in your area, which you can use to find a local lender or compare against other loan options. From the [loan type] select box you can choose between HELOCs and home equity loans of a 5, 10, 15, 20 or 30 year duration.

Cambridge Homeowners: Leverage Your Home Equity Today

Our rate table lists current home equity offers in your area, which you can use to find a local lender or compare against other loan options. From the [loan type] select box you can choose between HELOCs and home equity loans of a 5, 10, 15, 20 or 30 year duration.

Money Saving Tip: Lock-in Cambridge's Low 30-Year Mortgage Rates Today

How much money could you save? Compare lenders serving Cambridge to find the best loan to fit your needs & lock in low rates today!

By default 30-yr fixed-rate refinance loans are displayed in the table below. Filters enable you to change the loan amount, duration, or loan type.

Should I Use a HELOC to Lower My Debt Payments?

A Home Equity Line of Credit, or HELOC, is a loan made on the amount you have acquired in home equity. Though you are still paying off your home, you can borrow on the value of your home that you have already paid off. If you have been living in your home for only a few years, you may have very little equity or even no equity. However, if you have been living in your house for a decade or more, you could have tens of thousands of dollars available to borrow.

A HELOC can come in handy if you want to add on to your home, remodel, or pay off other debts, such as credit cards, car loans or medical bills. However, you should carefully consider your options before making this choice to take out an additional line of credit. Understanding the advantages and disadvantages can help you to make the choice.

Benefits of a HELOC for Consolidating Debts

There are many benefits to taking out a home-equity loan.

Lower Your Interest Expenses

A HELOC can help you to lower your debt payments by lowering your interest rate. For example, on October 8, 2020, the national average interest rate for a 30-year fixed rate mortgages was 2.87 percent, while the average credit card interest rate on cards assessed interest stood at 16.43 percent in August 2020. Though lines of credit may have a variable interest rate and a shorter term than a 30-year mortgage (anywhere from 5 to 15 years), the rate is still likely to be significantly lower than that of most credit cards and other forms of consumer debt. A good rule of thumb is HELOCs often charge between 2% to 5% more than first mortgages.

By lowering your interest rate, you may be able to pay off your debt more quickly. Making the minimum payment on your credit cards can take you years to pay off your debts. By consolidating your debt with a HELOC, you can make one monthly payment with a lower interest rate, allowing you to both pay less each month and to pay off your debt more quickly. Depending on the amount of your debt, you could save several thousand dollars in interest charges in the first year alone.

A responsibly used HELOC gives you the spending flexibility of a credit card with much lower interest rates.

In the past interest paid on home equity loans and HELOCs was tax deductible, but the 2018 tax bill no longer allows the deductiblility of equity debt unless it was taken on to build or substantially improve the homeowner's dwelling. Interest due on first mortgage debt still remains tax deductible.

Man calculating monthly budget.

Disadvantages of Leveraging Your Home Equity

There are a few disadvantages of taking out a HELOC, mostly dependent on your own spending habits.

You Could Clear High Interst Debts Only to Replace Them Again

When you pay off your credit cards, you clear up a significant line of credit. No longer are your cards maxed out, and no longer do you have to be careful about using them. This may tempt you to spend more freely, which could lead to the accumulation of more credit card debt. Before you know it, you could max out your cards again, and then you would have the same credit cad debt you did before in addition to your monthly HELOC payment.

You Could Lose Your Home!

When you consolidate your debt, you also move them from unsecured to secured status. If you defaulted on your credit card payments, the only recourse your creditors had was to report it to the credit bureaus. If you default on your HELOC, your creditor can foreclose on your home.

The Growth and Decline (and Growth) of HELOCs

1

The Federal Reserve offset the Dot Com bubble crash by holding interest rates low. That, in turn, caused a boom in the housing market, as asset prices re-rated to reflect lower interest expenses and investors seeking yields. Ahead of the 2008 Great Recession many homeowners treated their homes like piggy banks. The total second mortgage debt outstanding went from $349 billion at the end of 1999 to above a trillion dollars in early 2006.

 

2

Second mortgage debt peaked at $1.138 trillion in October 2007 and had fallen below a half trillion dollars by early 2020. Due to low interest rates after the COVID-19 crash and first mortgages charging lower rates than HELOCs, many homeowners have opted for cash out refinancing instead of obtaining a second mortgage. The total outstanding home equity debt bottomed out at $436.7 trillion at the end of 2021.

 

3

Since then, the Federal Reserve rate hiking cycle has encouraged homeowners to keep their existing low-rate first mortgages rather than refinancing & get a HELOC to tap growing home equity. Second mortgage debt has grown around 2% per quarter (or roughly 8% annually) since the Federal Reserve began hiking interest rates in earnest after higher than expected inflation emerged in 2021.

 

The following table lists quarterly home equity loan volume data in millions of dollars.

Date Home Equity Loan Debt (millions) Quarterly Δ (millions) Quarterly Δ Yearly Δ (millions) Yearly Δ
10/1/1990 $214,685
1/1/1991 $216,610 $1,925 0.897%
4/1/1991 $220,573 $3,963 1.830%
7/1/1991 $222,130 $1,557 0.706%
10/1/1991 $221,994 -$136 -0.061% $7,309 3.405%
1/1/1992 $219,229 -$2,765 -1.246% $2,619 1.209%
4/1/1992 $218,756 -$473 -0.216% -$1,817 -0.824%
7/1/1992 $219,991 $1,235 0.565% -$2,139 -0.963%
10/1/1992 $217,107 -$2,884 -1.311% -$4,887 -2.201%
1/1/1993 $215,572 -$1,535 -0.707% -$3,657 -1.668%
4/1/1993 $215,442 -$130 -0.060% -$3,314 -1.515%
7/1/1993 $214,378 -$1,064 -0.494% -$5,613 -2.551%
10/1/1993 $210,376 -$4,002 -1.867% -$6,731 -3.100%
1/1/1994 $208,700 -$1,676 -0.797% -$6,872 -3.188%
4/1/1994 $214,092 $5,392 2.584% -$1,350 -0.627%
7/1/1994 $219,102 $5,010 2.340% $4,724 2.204%
10/1/1994 $221,795 $2,693 1.229% $11,419 5.428%
1/1/1995 $224,620 $2,825 1.274% $15,920 7.628%
4/1/1995 $232,082 $7,462 3.322% $17,990 8.403%
7/1/1995 $236,441 $4,359 1.878% $17,339 7.914%
10/1/1995 $237,465 $1,024 0.433% $15,670 7.065%
1/1/1996 $237,781 $316 0.133% $13,161 5.859%
4/1/1996 $248,020 $10,239 4.306% $15,938 6.867%
7/1/1996 $253,915 $5,895 2.377% $17,474 7.390%
10/1/1996 $262,553 $8,638 3.402% $25,088 10.565%
1/1/1997 $268,787 $6,234 2.374% $31,006 13.040%
4/1/1997 $280,835 $12,048 4.482% $32,815 13.231%
7/1/1997 $290,615 $9,780 3.482% $36,700 14.454%
10/1/1997 $296,982 $6,367 2.191% $34,429 13.113%
1/1/1998 $298,023 $1,041 0.351% $29,236 10.877%
4/1/1998 $301,718 $3,695 1.240% $20,883 7.436%
7/1/1998 $305,882 $4,164 1.380% $15,267 5.253%
10/1/1998 $309,933 $4,051 1.324% $12,951 4.361%
1/1/1999 $311,110 $1,177 0.380% $13,087 4.391%
4/1/1999 $313,676 $2,566 0.825% $11,958 3.963%
7/1/1999 $326,274 $12,598 4.016% $20,392 6.667%
10/1/1999 $334,344 $8,070 2.473% $24,411 7.876%
1/1/2000 $349,285 $14,941 4.469% $38,175 12.271%
4/1/2000 $370,280 $20,995 6.011% $56,604 18.045%
7/1/2000 $389,117 $18,837 5.087% $62,843 19.261%
10/1/2000 $407,940 $18,823 4.837% $73,596 22.012%
1/1/2001 $411,452 $3,512 0.861% $62,167 17.798%
4/1/2001 $428,584 $17,132 4.164% $58,304 15.746%
7/1/2001 $440,924 $12,340 2.879% $51,807 13.314%
10/1/2001 $438,935 -$1,989 -0.451% $30,995 7.598%
1/1/2002 $452,147 $13,212 3.010% $40,695 9.891%
4/1/2002 $477,666 $25,519 5.644% $49,082 11.452%
7/1/2002 $497,930 $20,264 4.242% $57,006 12.929%
10/1/2002 $500,724 $2,794 0.561% $61,789 14.077%
1/1/2003 $516,650 $15,926 3.181% $64,503 14.266%
4/1/2003 $536,416 $19,766 3.826% $58,750 12.299%
7/1/2003 $559,473 $23,057 4.298% $61,543 12.360%
10/1/2003 $593,376 $33,903 6.060% $92,652 18.504%
1/1/2004 $618,927 $25,551 4.306% $102,277 19.796%
4/1/2004 $674,414 $55,487 8.965% $137,998 25.726%
7/1/2004 $729,984 $55,570 8.240% $170,511 30.477%
10/1/2004 $775,931 $45,947 6.294% $182,555 30.765%
1/1/2005 $805,480 $29,549 3.808% $186,553 30.141%
4/1/2005 $854,580 $49,100 6.096% $180,166 26.714%
7/1/2005 $885,345 $30,765 3.600% $155,361 21.283%
10/1/2005 $917,952 $32,607 3.683% $142,021 18.303%
1/1/2006 $950,107 $32,155 3.503% $144,627 17.955%
4/1/2006 $1,002,574 $52,467 5.522% $147,994 17.318%
7/1/2006 $1,039,498 $36,924 3.683% $154,153 17.412%
10/1/2006 $1,069,421 $29,923 2.879% $151,469 16.501%
1/1/2007 $1,083,101 $13,680 1.279% $132,994 13.998%
4/1/2007 $1,104,530 $21,429 1.978% $101,956 10.169%
7/1/2007 $1,128,836 $24,306 2.201% $89,338 8.594%
10/1/2007 $1,138,004 $9,168 0.812% $68,583 6.413%
1/1/2008 $1,135,801 -$2,203 -0.194% $52,700 4.866%
4/1/2008 $1,136,731 $930 0.082% $32,201 2.915%
7/1/2008 $1,127,586 -$9,145 -0.804% -$1,250 -0.111%
10/1/2008 $1,124,438 -$3,148 -0.279% -$13,566 -1.192%
1/1/2009 $1,106,632 -$17,806 -1.584% -$29,169 -2.568%
4/1/2009 $1,084,495 -$22,137 -2.000% -$52,236 -4.595%
7/1/2009 $1,061,002 -$23,493 -2.166% -$66,584 -5.905%
10/1/2009 $1,041,287 -$19,715 -1.858% -$83,151 -7.395%
1/1/2010 $1,022,112 -$19,175 -1.841% -$84,520 -7.638%
4/1/2010 $1,004,016 -$18,096 -1.770% -$80,479 -7.421%
7/1/2010 $983,654 -$20,362 -2.028% -$77,348 -7.290%
10/1/2010 $928,694 -$54,960 -5.587% -$112,593 -10.813%
1/1/2011 $905,282 -$23,412 -2.521% -$116,830 -11.430%
4/1/2011 $884,978 -$20,304 -2.243% -$119,038 -11.856%
7/1/2011 $869,198 -$15,780 -1.783% -$114,456 -11.636%
10/1/2011 $853,678 -$15,520 -1.786% -$75,016 -8.078%
1/1/2012 $831,836 -$21,842 -2.559% -$73,446 -8.113%
4/1/2012 $812,445 -$19,391 -2.331% -$72,533 -8.196%
7/1/2012 $792,453 -$19,992 -2.461% -$76,745 -8.829%
10/1/2012 $771,765 -$20,688 -2.611% -$81,913 -9.595%
1/1/2013 $747,980 -$23,785 -3.082% -$83,856 -10.081%
4/1/2013 $730,523 -$17,457 -2.334% -$81,922 -10.083%
7/1/2013 $715,413 -$15,110 -2.068% -$77,040 -9.722%
10/1/2013 $702,998 -$12,415 -1.735% -$68,767 -8.910%
1/1/2014 $690,688 -$12,310 -1.751% -$57,292 -7.660%
4/1/2014 $684,434 -$6,254 -0.905% -$46,089 -6.309%
7/1/2014 $679,598 -$4,836 -0.707% -$35,815 -5.006%
10/1/2014 $673,054 -$6,544 -0.963% -$29,944 -4.259%
1/1/2015 $660,764 -$12,290 -1.826% -$29,924 -4.332%
4/1/2015 $652,763 -$8,001 -1.211% -$31,671 -4.627%
7/1/2015 $643,351 -$9,412 -1.442% -$36,247 -5.334%
10/1/2015 $641,913 -$1,438 -0.224% -$31,141 -4.627%
1/1/2016 $630,694 -$11,219 -1.748% -$30,070 -4.551%
4/1/2016 $624,900 -$5,794 -0.919% -$27,863 -4.268%
7/1/2016 $614,051 -$10,849 -1.736% -$29,300 -4.554%
10/1/2016 $600,750 -$13,301 -2.166% -$41,163 -6.413%
1/1/2017 $590,391 -$10,359 -1.724% -$40,303 -6.390%
4/1/2017 $584,447 -$5,944 -1.007% -$40,453 -6.474%
7/1/2017 $576,707 -$7,740 -1.324% -$37,344 -6.082%
10/1/2017 $569,883 -$6,824 -1.183% -$30,867 -5.138%
1/1/2018 $555,118 -$14,765 -2.591% -$35,273 -5.975%
4/1/2018 $546,767 -$8,351 -1.504% -$37,680 -6.447%
7/1/2018 $538,213 -$8,554 -1.564% -$38,494 -6.675%
10/1/2018 $533,306 -$4,907 -0.912% -$36,577 -6.418%
1/1/2019 $523,957 -$9,349 -1.753% -$31,161 -5.613%
4/1/2019 $518,973 -$4,984 -0.951% -$27,794 -5.083%
7/1/2019 $509,539 -$9,434 -1.818% -$28,674 -5.328%
10/1/2019 $501,333 -$8,206 -1.610% -$31,973 -5.995%
1/1/2020 $495,315 -$6,018 -1.200% -$28,642 -5.466%
4/1/2020 $474,066 -$21,249 -4.290% -$44,907 -8.653%
1/1/2021 $421,659 -$52,407 -11.055% -$87,880 -17.247%
4/1/2021 $460,687 $39,028 9.256% -$40,646 -8.108%
7/1/2021 $452,098 -$8,589 -1.864% -$43,217 -8.725%
10/1/2021 $446,204 -$5,894 -1.304% -$27,862 -5.877%
1/1/2022 $436,705 -$9,499 -2.129% $15,046 3.568%
4/1/2022 $452,015 $15,310 3.506% -$8,672 -1.882%
7/1/2022 $466,055 $14,040 3.106% $13,957 3.087%
10/1/2022 $478,068 $12,013 2.578% $31,864 7.141%
1/1/2023 $480,761 $2,693 0.563% $44,056 10.088%
4/1/2023 $489,533 $8,772 1.825% $37,518 8.300%
7/1/2023 $500,716 $11,183 2.284% $34,661 7.437%
10/1/2023 $512,339 $11,623 2.321% $34,271 7.169%

Data source: FRED data from the Board of Governors of the Federal Reserve System Z.1 Financial Accounts of the United States

Making the Decision

Ultimately, whether a HELOC is the best idea for you depends entirely on your current financial situation and how much debt you have. The above calculator can help you make the decision by comparing the expenses you will pay with a HELOC with those you will pay on your other debts. For example, the calculator takes into account interest rate and loan term, as well as the closing costs and your estimated tax savings. It then compares that to all of the debts you plan to consolidate, including the amount you owe on your auto loan, credit cards and other accounts, your monthly payment and your interest rates. The calculator provides an easy monthly payment comparison to help you determine how much money you can save.

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