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Take your home equity and run

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Once a big chunk of your salary is no longer targeted toward your mortgage, you may wonder what to do with the extra money each month. "By freeing up that cash flow you are able to use the additional cash that is available to invest for future growth or to increase lifestyle," says Harrison.

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Paying off debt after the sale of your home is one of the best things you can do to improve your financial situation. "Pay off the unsecured debt with the highest interest rate first, says Deborah Pegues, CPA and author of "30 Days to Taming Your Finances: What to Do (and Not Do) to Better Manage Your Money."

If you can't pay off everything at once, pay off the debt with the lowest balance first for a snowball effect, says Pegues. "You will feel a sense of success after paying off a debt and will want to do it again."

To successfully pay off debt, you will have to make some changes. "I don't believe in total deprivation, but you have to give up a luxury," says Pegues.

A low or nonexistent mortgage also provides lifestyle benefits such as the ability to pursue a hobby, travel or simply the luxury of working less and playing more. Two-income families with children may consider having one parent stay at home.

However, if mortgage interest was your largest itemized deduction, losing or decreasing it may have some consequences. "If you replaced your home with a less-expensive residence, the good news may be a lower interest charge on your mortgage," says CPA Dan Meehan, a partner in J.H. Cohn's Tax Advisory Services Group. "But remember, the government could have been subsidizing about one-third of that payment with the benefit of a tax deduction.

"A lower mortgage means higher taxable income, so adjust your withholding or estimated payments to make up the difference and avoid underpayment penalties," he says.

Welcome to the neighborhood
Relocation is not something to take lightly, especially if several people are involved in the decision. The quality of schools in a prospective area is an important factor to consider when children reside in the home. Health care accessibility is another important issue.

Vicki Gagnier, a relocation specialist, says there are five critical components a family should evaluate when contemplating a move to a new place.

5 most critical components:
Cost of living analysis.
Education availability.
Employment opportunities.
Quality of life.
Religious and civic affiliations.

"A reputable relocation company will typically provide as a service, at no expense to the transferring family, a relocation package that includes information on demographics, schools, cost of living, recreational, cultural, civic and business opportunities," says Gagnier.

Homeownership will always be the American dream, but being a slave to a mortgage can be a nightmare. If you are struggling with high mortgage payments or have the desire for a lifestyle change, do the math and determine the equity you have in your home. The calculation may spur a quest to find a new place to call home.

Bankrate.com's corrections policy -- Posted: Feb. 8, 2007
 
 
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Home Equity
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NATIONAL OVERNIGHT AVERAGES
$30K HELOC 4.30%
$50K HELOC 3.96%
$30K Home equity loan 4.99%
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