Should You Use Home Equity to Pay Off Debt? The Math, and the Catch

You locked a mortgage in the low threes and you have said out loud, more than once, that you will never give that loan up. I understand the feeling. It is the best loan you will ever have and handing it back feels like losing something you earned.

I want to show you a different way to look at it, and then I want to show you the reason it goes wrong for people, because the second part matters more than the first and almost nobody selling this idea will tell you about it.

I'm Chaitali (CeCe) Cherian of KeysWithCeCe. I'm a REALTOR® with eXp Realty and a licensed loan officer. I represent buyers and sellers here in the East Bay, and on the lending side I can work with anyone in California, so this one is not limited to my corner of the map.

Here is a household I would recognize anywhere in California. These are illustrative numbers, walked through by Barry Habib in a market session this week, and they are not a rate quote or an offer.

A couple bought five years ago for $500,000 with a $400,000 loan. The home is worth about $700,000 now and they owe about $362,000. Their rate is excellent and they have 25 years left.

Here is what actually leaves their account every month:

• Principal and interest on the house: $1,796
• Property taxes and insurance: $1,034
• Car payments: $1,500
• Credit cards and revolving debt: $2,000
• Total: $6,330

Their consumer debt adds up to $111,000. They have about $338,000 of equity sitting in the house doing nothing.

If you are not sure what your own equity looks like, start with what your home is worth. There is no obligation attached to a number.

Now look at where that $6,330 goes. The mortgage, the thing they are protecting, is the cheapest money in the stack. The car loans and the cards are the expensive money, and together they are more than half the monthly total.

The rate on the mortgage is the number they think about. It is not the number that is hurting them.

If they pull enough equity to clear all of it and roll everything into a single loan at today's higher rate, the rate on the house goes up and the total they pay every month goes down. In this example, to about $4,280.

That is roughly $2,050 a month back, about $24,600 a year. Because it is not taxable income, it takes a meaningfully larger raise to match it.

Notice what actually happened there. They did not get a better rate. They got a worse rate on a bigger balance, and they still came out $2,050 a month ahead, because the expensive debt is gone. Rate is one input. It is not the answer by itself.

This is the step that changes it from relief into wealth, and it is the one most people never get shown.

Suppose they keep paying the $6,330 they were already paying. Nothing changes about their life. They were writing those checks anyway. The only difference is that the money goes to one place instead of six, and everything above the new payment goes straight at the principal.

In this example the house is paid off in about ten and a half years instead of twenty five years and four months. That is 178 payments they simply never make, worth roughly $319,688.

At the five year mark they are about $79,000 ahead of where the old path would have left them. At ten and a half years they own the house outright.

When Barry presented this, someone asked the obvious question: do not most people just run the credit cards back up? He brushed it aside and compared it to a doctor refusing to help you quit smoking because you might start again.

I think that answer is too easy, and I am not going to repeat it to you.

Here is what is actually true. This move takes debt that is unsecured and makes it secured against your house. Credit card debt is expensive and it is miserable, but if everything goes wrong, it does not take your home. A mortgage can. You are trading a high rate for a higher stake.

It also stretches the term. Debt you might have cleared in four painful years gets spread over a much longer loan. If you consolidate and then just enjoy the lower payment without redirecting anything, you will pay more in total over time, not less. The whole benefit in the chart above depends on that one behaviour.

So this works when two things are true:

• The cards go to zero and stay there. Not "mostly." If the balances creep back, you now have the consumer debt again plus a bigger mortgage, which is strictly worse than where you started.
• You actually redirect the savings instead of absorbing it into everyday spending. If the $2,050 quietly becomes groceries and streaming, the payoff chart does not happen.

If you read those two and thought "probably not," then this is not your move, and I would rather tell you that now than write you a loan. That is a real answer and it costs me a transaction to give it.

This is the other thing I hear, and it deserves a straight answer.

You might be right. Rates may well improve. But waiting is a strategy only if you can act when the moment arrives, and the moments have been short.

I pulled the Federal Reserve's own daily series for the 10-year Treasury, which mortgage rates track, and counted every stretch where refinancing got genuinely interesting.

Since July 2023 the 10-year has touched 4% or below thirteen separate times. Nine of those thirteen lasted two trading days or less. Four lasted exactly one day. One stretch in the second half of 2024 held for about two months, so it is not true that every window closes in a week. But the typical one closed about as fast as it opened, while you were at work.

So "call me when rates get good" is not a plan. A number is a plan. Decide what monthly saving would make you say yes, tell me the figure, and let me do the watching.

And notice that the math in this article does not actually need rates to fall. The saving comes from clearing the expensive debt, not from a better rate on the house. A lower rate later makes it better. It is not what makes it work.

It fits when most of these are true:

• You have real equity, usually meaning you would still be comfortably under 75% of the value after the new loan.
• You are carrying meaningful consumer debt at rates well above your mortgage, especially cards and vehicle loans.
• Your total monthly outgoings, not just your mortgage, are the thing under pressure.
• You intend to stay in the home for a good while.
• You can say yes to the two conditions in the section above without talking yourself into it.

It does not fit when you are carrying very little consumer debt, when you are planning to sell soon, when your equity is thin, or when the spending pattern that created the balances has not changed. In that last case the numbers will look great on paper and will not survive contact with real life.

Every household's numbers are different, and the example above is an example, not your file. What I can do is run your actual version of it: what you owe, what it costs you monthly, what one loan would look like, and whether the answer is yes or no for you specifically.

If the answer is no, I will say so.

If you own a home anywhere in California and that household at the top sounded familiar, call or text me at (510) 610-0124, or email cece@realtorcece.com.

You can also send me a message with your rough numbers and I will come back with a straight yes or no.

Chaitali (CeCe) Cherian · KeysWithCeCe · REALTOR®, eXp Realty, CA DRE #02316205 · Licensed Mortgage Loan Officer, Nexa Lending, NMLS #2590353 · Equal Housing Opportunity.

All figures in this article are illustrative and are not a rate quote, a loan offer, or a commitment to lend. All financing is subject to underwriting approval, and the property must qualify. Nothing here is tax or financial advice; talk to your CPA about your own situation. The example household is from Barry Habib, MBS Highway, October 22, 2026. The 10-year Treasury chart is drawn from Federal Reserve Economic Data, series DGS10.