The average adult American has multiple credit cards. When considering that many adults also have car payments and other debts, it’s no surprise that these bills can become overwhelming. In fact, many consumers find themselves spending a significant portion of their income on bills, wishing for ways to lighten their load.
Fortunately, if you find yourself struggling to keep up with bills, you do have options. Homeowners that want to simplify their finances and begin getting out of debt can refinance their mortgage into a debt consolidation loan.
What Is a Debt Consolidation Loan?
A debt consolidation loan is a loan that allows homeowners to consolidate their unsecured debts into their mortgage loan. Assuming that a homeowner has built up sufficient equity in their home, he or she may be able to refinance, using their home’s equity to pay off other debts. This will leave the homeowner with one monthly payment, instead of struggling to keep up with several different payments each month.
Should You Refinance Mortgage While Using Consolidation?
There are a few factors to consider when deciding to refinance your mortgage while using consolidation. The first thing that you will need to understand is that you will be turning your unsecured debts, into a secured debt. If a consumer begins to struggle financially and cannot continue to make one of their credit card payments, their credit will suffer, their interest rates will increase, and they will probably begin receiving frequent calls from a debt collector. While none of these consequences are ideal, the consequence of failing to make your mortgage payment is much more severe. If you consolidate your debt into your mortgage loan and fail to make the payments, you could lose your home.
Also, those who refinance their mortgage while using consolidation must be willing to pay closing costs and other fees. Consolidation is not free. While you can shop around and find a great deal, you will still be required to pay for the loan. However, in most cases, closing costs and other fees are rolled into the loan. This means that you will not be required to pay the closing costs out of pocket. Unfortunately, this also means that you will pay interest on these fees.
What Are the Benefits of Refinancing Your Mortgage Into a Debt Consolidation Loan?
There are also many benefits to refinancing using a debt consolidation loan. These loans help homeowners consolidate their bills into one monthly payment. Consumers that sometimes forget when bills are due and tend to rack up late fees, will especially find this to be convenient.
Consolidating can also significantly reduce your interest rates. Many consumers are paying around 8 to 21 percent interest on their credit cards each month. While you will still owe the same amount, your debt consolidation loan will feature a much lower interest rate. This may help you reduce your monthly payments and have more disposable income each month. Some of this income can even be put towards the consolidation loan, which will help you lower the balance of the loan and get out of debt faster.
Consumers that are struggling with debt have a number of options to consider. Before deciding to refinance your mortgage while using consolidation, it is important to determine whether this option will help to reduce your monthly bills, while benefiting you in the long run.
Back to Mortgage News & Articles