Is consolidating my debt with a mortgage the right thing to do?

A debt consolidation loan with a home mortgage is the same as a cash out refinance.  A refinance in which a borrower increases the loan amount on the new mortgage above that of the existing mortgage plus the associated costs to close the loan is considered a cash out refinance.  It doesn’t matter if the funds from the refinance are paying off other debts or used for home improvement or a skiing vacation in the Alps, it is still a cash out refinance.  All of those scenarios are classified as a cash out refinance.  If you have sufficient equity in your home, you may use the funds from a refinance to consolidate your personal debt into one easier payment.  Credit card balances, auto loans, and second mortgages often carry an interest rate higher than that of a refinanced first mortgage. Refinancing may reduce your monthly payments by decreasing your monthly interest charges.  In addition, unlike with personal debt, the interest on a mortgage is generally tax-deductible.  The best advice is to check the interest rates on the debts you wish to pay off, checks today’s mortgage interest rates and enter the mortgage rate and debt amounts into a debt consolidation calculator to ascertain the savings.   Be sure to check the term of the mortgage on the mortgage calculator since the consumer debt you are paying off is most likely has a shorter than the new mortgage.  The mortgage payment calculator can produce an amortization schedule and if the savings are sufficient enough you may consider increasing the mortgage payment on the mortgage calculator to see how much faster you can pay off the loan.

This entry was posted on Wednesday, December 10th, 2008 at 9:05 pm and is filed under Mortgage FAQs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.