If you have a lot of consumer debt and you own a home, too, sooner or later you may be tempted by a refinance home mortgage you can use to consolidate debts. You refinance your mortgage, borrow enough to pay off your debts, make one monthly payment instead of several, and save thousand of dollars in interest payments. At least, that’s what lenders looking to sell you a refinance home loan for debt consolidation want you to believe.
In theory, you might be able to save a great deal of time and money paying off your debt through a refinance home loan for debt consolidation. There are a few potential problems to consider before you jump at your refinance home loan for paying off debt.
First, what will happen if you continue to rack up debt on credit after you take out this new loan? You risk creating a great deal more debt if you refinance home mortgage, pay off your credit cards, but then start charging again. You could lose a lot more than your credit rating if you end up with more debt you can’t afford to pay off once refinancing is no longer an option. Consider what would happen if you lost your job, had virtually no equity left in your home, a mound of newly accumulated credit car debt – and no way to pay your bills. Foreclosure would be a real threat, and possibly your only recourse. That’s why it’s so important to change your spending habits if you’re looking to a refinance home loan for debt consolidation.
Another thing to consider is the higher interest rate you’re likely to pay for refinance home mortgage loans for debt consolidation. How much extra will that increase in interest cost you over the life of your new mortgage loan? Will you actually be saving anything in the long run?