If you’ve been struggling with credit card debts, and find it difficult to keep up with the interest and all of the different payment dates, then a debt consolidation mortgage may be extremely tempting. But there are some things you need to watch out for before committing to such a big decision. Below, we’ll find out whether or not a debt consolidation mortgage is right for you.
Debt Consolidation Explained
A debt consolidation allows you to combine multiple debts into a single one so that you only have one payment to make. For example, if you have multiple credit cards debts, a debt consolidation would involve combining all of the debts from those credit cards into one. You would therefore no longer have to keep track of all of your different payment dates, and would only have one set interest rate for all of your debts.
In order to consolidate your debts, you have to ask your lender for a loan equal or greater than the amount of debts you owe. This way, you pay off your debts, and only have the loan to pay off. Debt consolidation is always a tempting idea because it usually allows you to pay off your debts with a lower interest rate and the debt is much easier to track.
Debt consolidation mortgages involve consolidating your debt with a mortgage refinance. This means replacing your existing mortgage with a brand new one. A brand new mortgage means brand new terms.
The Pros and Cons of Debt Consolidating with Mortgage Refinance
There are many pros to consolidating your debts with a mortgage refinance — and sometimes the pros seem so good that you won’t even consider the cons. But you need to be fully informed before making such a big decision.
Pros
- Lower interest rate
If you have a lot of credit card debts, a debt consolidation mortgage might be really tempting, because chances are that the interest rate on your mortgage refinance will be much lower than your credit cards’ interest rates. The payments will therefore seem much more manageable. It may also help make you eligible for a mortgage interest deduction.
- Fewer payments
The best reason to consolidate your debts is having fewer monthly payments. This ensures that you’ll never lose track of your payments. You won’t ever have to worry about missing a payment and seeing your credit score drop.
- End date in sight
Those who struggle with a lot of credit card debts have trouble seeing the light at the end of the tunnel. This is usually due to the fact that they can barely make a dent in their debts with the amount of interest they have to pay. By consolidating your debt with a mortgage refinance, you know exactly when your debts will be paid off.
Cons
- Prolonging your mortgage payments
An evident downside to adding your debts to your mortgage is that depending on the amount of debts you have, you may be adding years to your mortgage payments. Although an end is in sight, that end may actually be prolonged.
- Risky
If you were already having trouble making ends meet, then a mortgage refinance might not be the best idea — especially if you’ve already missed a few payments. The lower your credit score, the lower your chance of getting good terms on your mortgage refinance, and the more you might end up paying in the long run. You might even have trouble making those payments. This can be extremely risky since your house is on the line. Moreover, if you end up considering bankruptcy, then it can make it difficult for you to discharge all of your debts without having to give up your home.
If you’re considering debt consolidation through mortgage refinancing, it’s important that it is an informed decision. In order to have all of the information necessary, contact a licensed insolvency trustee as soon as you can. Your LIT will provide you with all of the pros and cons of debt consolidation through mortgage refinancing, and will even let you know if this is the right decision for you. By analyzing your personal situation, a licensed insolvency trustee will find the best way for you to rid yourself of your debts so that you never have to lose sleep over your finances again.
