Can Home Refinance Loans Help You Consolidate Debt?
Getting into debt is never something you plan for, but bills add up and when finances get tight, it’s easy to turn to your credit card to help make ends meet. It’s nothing to be ashamed of, but that doesn’t mean you have to accept those high-interest rates most cards charge you every month. You can always refinance your debt to lower your payments and consolidate them into a single loan. Home refinance loans can help you do just that. This is what you need to know about consolidating your debt with a mortgage.
Refinancing Increases Your Mortgage Amount
When you use home refinance loans to consolidate debt, you’ll be increasing the total size of your mortgage by the amount of your outstanding debts. This isn’t necessarily bad and it can still help save you on interest payments over the life of your debt. Just remember not to feel overwhelmed when you see the total amount of the loan. Remember, you’re getting rid of high-interest debt and bundling it into a lower interest loan with a single monthly payment.
Your Home Becomes Your Collateral
Most debt like credit cards and personal loans are unsecured. This means there’s nothing that you’re risking with the debt other than your credit score and personal financial situation. When you consolidate your debt into a refinanced mortgage loan, your house becomes your collateral. This is how banks and lenders can give you lower interest rates even on higher levels of debt. However, it also means that the lender can take possession of your house if you default on the loan. It’s risky, but if you’re confident that you can make your monthly payments, it’s often worth the risk.
Your Monthly Payments May Be Larger
What surprises many people about consolidating debt with a new mortgage is that your monthly payments may end up being higher. This is because the minimum payment your lender expects you to make is based on the loan’s total value and will help you repay that amount by the end of the loan’s term. Credit card companies, on the other hand, have minimum payments you’re expected to make each month but those payments won’t be enough to help you pay down the balance.
Ready to Apply?
If you think home refinance loans will help you simplify your debt and make paying it off easier, don’t wait. Apply for a loan today and stop paying overly high interest rates once and for all.