High-interest debt from credit cards or loans can make it challenging to manage your finances. Fortunately, homeowners can take advantage of their home’s equity to pay off other debt by combining the money you owe into a mortgage debt consolidation loan.
What Are Consolidation Loans?
Consolidation loans can be a great way to gain control over your debt. They give you the convenience of rolling all your debts into a single monthly payment that is usually lower than what you were paying before. By getting a lower interest rate, a more extended repayment period, or a combination of both, you can pay off your debt with more manageable payments.
Mortgage-Based Debt Consolidation
Using your mortgage to consolidate your debt into one loan may be a good option for various reasons. Mortgage rates are usually lower than interest rates for other types of debt, like credit cards or other unsecured loans. You can also repay your mortgage over a more extended period, helping you reduce your monthly payments. Additionally, interest paid on mortgage debt, even from debt consolidation, is tax-deductible up to a certain amount.
Types of Mortgage Debt Consolidation Loans
Your loan may be one of two kinds: a home equity loan or a cash-out refinance. Both types of loans have their advantages.
Cash Out Refinance
With a cash-out refinance, you consolidate all your debt into an individual loan and typically get the best mortgage rate.
Home Equity Loan
A home equity loan or line of credit is the right choice if you want to consolidate your debts but keep them separate from your primary mortgage. Doing so allows you to pay off your debts more quickly while paying down your regular mortgage over a more extended time.
The Downside of Mortgage Debt Consolidation Loans
The downside of using your mortgage for consolidating debt is that you’re risking your home if you fail to pay your loan. While credit cards have higher interest rates than a mortgage, you won’t lose your home if you fail to pay your credit card debt.
Do Your Homework
Do the proper research before committing to a debt consolidation mortgage. Know the pros and cons and speak with a professional to make the best decision for your situation.
Ready to Apply for a Mortgage Loan?
If you want to cut your interest payments by consolidating your debt into a mortgage loan, contact us to get started today!