Debt Consolidation Home Refinance - A debt consolidation refinance is when a borrower uses the equity in his/her house to consolidate some or all of their existing debt by refinancing their current mortgage.
By using the equity in your home to pay down high interest credit cards you can possibly save your family hundreds of dollars per month. You also benifit by being able to deduct your mortgage interest. You should seek the advice of a mortgage broker before proceeding with your refinance to ensure you are matched to the right loan program.
Many times by consolidating debt through a refinance a borrower is able to not only save money from their total monthly expenses but they are able to reduce their mortgage rate and term also. Such as changing from a 30 year to a 20 year mortgage or a 20 year to a 15 year mortgage. This can not only save a lot of money in mortgage interest by cutting years off of your mortgage but it can many times save money monthly still.
Remember that the interest one pays on their mortgage is generally tax deductible while the interest on your personal debt is not. This is a great item to keep in mind when looking to do a debt consolidation refinance.
When considering a debt consolidation refinance you should look at your short and long term financial goals. Paying high interest bearing credit accounts with your mortgage will often times save you thousands over time.
When analysing the benefits of a debt consolidation refinance you should factor in the amount of time and money it will take you to pay off those credit accounts with your current payment schedule.
If you are currently making the minumum credit card payments, then it may take you several years to pay them off. This is considering that you continue to make those same minimum paymments throughout the life of the debt. If you were to do a debt consolidation, you could have that debt paid off within a matter of weeks.
Sometimes a debt consolidation refinance may cause your total mortgage payment to increase. This is because you will be borrowing more money, to pay off the debt. Don't worry though, because if you are paying $400 in credit card debt every month and your mortgage payments increase by $200. You will still be saving $200 every month!
Debt consolidation refinancing is the practice of moving short-term debt, into a home refinance loan. At closing any debts that have been chosen and listed will be paid from funds, above what is necessary to pay off the original mortgage balance.
When a homeowner applies for a mortgage, the lender bank evaluates the applicant's repayment capability by dividing the total monthly obligation by his income. The result of the Debt-to-Income Ratio qualifies/disqualifies the applicant. When a homeowner applies for a Debt-Consolidation loan, the payments for the debts to be paid off at closing are not included in the DTI Ratio.
While some say that there is good debt and bad, it could be argued whether any debt could really be considered "good". One thing is fairly certain, unsecured consumer debt and credit card debt in particular is the worst kind of debt one can take on. There are usually strong financial benefits to consolidating such debt into your home mortgage.
Options For Debt Consolidation - If you are a homeowner and are carrying large credit card or other unsecured debt balances you may want to consider a debt consolidation refinance. Not only could you save money every month with debt consolidation but you also gain the advantage of tax deductible interest. Today you have many different options when you consolidate your debt with a mortgage refinance.
One of the most desired options for debt consolidation refinancing is the 30 year fixed rate mortgage, however most borrowers believe that 30 year fixed rate mortgages may be too expensive for them to consider as one of their options for debt consolidation. While this has been historically true, the gap between 30 year fixed rate mortgages and adjustable rate mortgage, or ARMs, is near a historic low at the time of this writing, making them less expensive than ever when compared to ARM loans. 30 year fixed rate mortgages are now also available with flexible payment options, giving borrower one less reason to select and ARM loan, and making the 30 year fixed one of the best options for debt consolidation
You can also "cash out" your equity to pay off your high-interest debt.
One should explore the reasons why one will go through debt consolidation. Freeing up cashflow to make ends meet is an excellent reason. Freeing up cashflow to go purchase more doodads is not such a good reason. Using the additional cashflow to increase your savings or investments is another excellent reason for debt consolidation. Once you have determined why you are embarking on debt consolidation, the options available to you will become clearer.
Another common option of consolidating debt is to obtain a second mortgage or a home equity line of credit, also known as a HELOC (pronounced He-lock). These 2 options are very comparable to each other, they both offer tax benefits and they both can provide lower interest rates along with one low monthly payment versus having a lot of different debt at higher interest rates. HELOCs and 2nd mortgages differ mainly in that with a second mortgage you get one lump sump of the entire amount of the loan and you pay it back on a timely schedule each month. With the HELOC, you take the money as you need it, you only pay for what you use and you make monthly payments only when there is a balance. Consult your mortgage professional to find out which option is best for you.