There are many possible benefits to refinancing your home. If you have earned equity in your home a refinance can allow you to draw on some of that equity to make improvements on your home or possible pay off some credit cards. Also, low interest rates make a refinance tempting because it will result in lower monthly payments and decrease the overall interest paid on the loan.
If a mortgage refinance is being considered to consolidate existing debt, there are a few negatives that should be taken into consideration.
Refinancing your home is very document intensive. You will need to reproduce all the personal information you provided when you purchased your home. Also there are loan fees attached to home refinance that should be considered.
It is wise to calculate the cost before deciding what you want to do. It takes a lot of time and money to refinance. Online calculators are easily accessible and can be a very useful tool.
Some decide to take the plunge of refinancing their mortgage simply to get out from under credit card debt or other loans that carry high interest rates. That is a big step to take. There are other much simpler ways to payoff high interest debt.
One thing to consider is a second mortgage or home equity loan on your home. This may be a feasible option if you have equity in your home and decent credit scores. It takes less effort than a first mortgage, though you will find the interest rates to be slightly higher. Also you are taking a lower risk on your home. As long as you are making your first mortgage payments, even you if slip a little on your second mortgage payments it is not likely that your home will be foreclosed on.
Before considering a mortgage of any kind, it may be better to try reorganizing your existing debt and make an effort to pay it down without making another loan. A restructure of existing debt, reducing the total balance, renegotiating interest rates or payments, is an option worth trying.
By making a new loan to try to solve the problem you dig yourself that much deeper into debt. It may be necessary but should be the last option you consider, not your first choice.
Is secured debt consolidation a good way to get your debt paid off? Find out more about what it is and whether or not it's a good choice on the Debt Smackdown website.