Refinancing Your Mortgage to Achieve Debt Consolidation
There are a surprising number of answers to the question - Why you would choose to refinance a mortgage? You might want a mortgage refinance to take advantage of lower interest rates and lower monthly payments on a new loan. It may be that your home has appreciated in value and you want or need to get your hands on some of the equity that�s sitting unused in your home. You may want to take out money for a special reason, such as to make home improvements or to use as a down payment on a second home. Or you may need cash to pay off other high-interest debts.
Recently it has become quite common for people with high amounts of credit card debt to refinance their home in order to take out cash to payoff credit card or other high interest debt. This can be a good idea, but it also carries risks.
For one thing, when you refinance your mortgage in order to pay off credit card debt, you are substituting unsecured credit card debt for a debt that can imperil your home. Transferring debt from unsecured credit cards to your home makes sense if doing so reduces your overall monthly expenses to the point that you have a monthly cash cushion and only if you also cancel all but one of your credit cards.
Not canceling credit cards is where many homeowners make their fatal mistake. It doesn�t do to put all of your credit cards in a drawer and tell yourself that you won�t use them again � because you will use them again. Cutting your cards up but not telling your credit card issuers to cancel your account is also a sure prescription for financial disaster because the cut up cards will be automatically replaced at some point in the future � and once you have a credit card in your hand the temptation to use it is simply too great for most people and within three years they find themselves in worse shape than ever before.
Now they not only have credit card bills they can�t pay, but they can�t pay their mortgage either.
That�s not to say that you should never refinance your mortgage in order to pay off credit card or other high-interest debt. If you can make certain that you will not get into high-interest debt again, then refinancing to pay off other debts can be a good idea.
In most cases refinancing to pay off high-interest debt will reduce your overall monthly payments and put more money in your pocket. For another thing, refinancing to pay off credit card debt can have significant tax advantages � although you will want to talk with your tax advisor first.
Low interest rates have sparked an explosion in the number of mortgage refinance loans being made nationwide, and if interest rates have dropped 1 percent to 1.5 percent lower than what they were when you took out your last mortgage loan then it may be time for you to consider refinancing your mortgage.
Please take a moment to review some of our partner sites...
|
