Home Refinance

Refinancing your home in order to pay off debt is one of the most commonly used methods of debt management. Fortunate homeowners that have equity (the value of their home is more than the amount owed on the mortgage) in their homes are normally able to refinance their home with no to little cost to pay down bills and pay off most debts. This method can be a wise move, but it also can be a financial disaster if done incorrectly. The homeowner needs to be aware of the risks and understand the pros and cons of a refinance to pay debt.

Pros
One of the biggest pros of doing a refinance to pay off debt is that most mortgages have a lower interest rate than most of the debt you owe. So financially you could see the savings in your payments immediately because of such a low interest rate versus the rate that’s you owe on credit cards which could be doubled or tripled. Paying off all of your debt also makes it easier for you to only pay a mortgage monthly instead of multiple creditors. This new found freedom of paying only the mortgage can help you create a budget going forward for future success and debt management. Another great benefit of the refinance is that most closing cost and mortgage interest are tax deductible. That means the debt you previously owed that wasn’t tax deductible now is with the refinance. This helps with savings and increases your tax returns especially is you have a lot of debt.   

Cons
There are negatives in refinancing your mortgage to pay off debt as well. One of the most common cons are overspending or what we call repeat offender syndrome. Most people that had a lot of credit card debt and bills that paid them off all at once, sometimes don’t learn from their mistakes and do the same thing again incurring more debt. Another con for doing a refinance is that most mortgages are for 30 years. The debt being paid is amortized or calculated for 30 years versus paying it now or settling the debt for less than you owe. This means over the 30-year period of that mortgage you would have paid double or triple the amount of the original debt during the life of that loan if you kept it for all 30 years. You also have to calculate the amounts of years it took you to recoup from the closing costs to see if it’s even worth doing at all. If you are in a 20 to 15-year mortgage already the cost may outweigh the benefit. It may be wiser to get a personal loan to pay off the debt.

• Mortgage Banker
• Mortgage Calculator
• Home Refinance Application
• 15 or 30 Year Mortgage?
• Closing or Beyond