One of the most common reasons to refinance is to consolidate debts. You can drastically reduce your overall monthly payments by consolidating various high-interest debts with your new mortgage. Along with reduced mortgage rates, this consolidation could save you thousands of dollars per year. It’s important to remember, however, that initial charges typically apply when refinancing a mortgage, so you won’t necessarily realize the financial benefits right away. But in the long run, you could save thousands of dollars by refinancing and consolidating debts.
What is Debt Consolidation?
If you are unfamiliar with debt consolidation, there are a few important facts you should understand before refinancing for this purpose. The basic definition of debt consolidation is any financial arrangement in which a borrower uses a new loan to pay off several smaller loans. In most cases, the interest rate on the new loan is lower than the rates of the smaller loans.
These are a few of the most common types of debts that are consolidated by refinancing :
- High-interest personal loans
- Credit card balances
- Auto loans
What are the Benefits of Debt Consolidation?
There are many benefits of consolidating debts through a mortgage refinancing arrangement, including the following:
- Lowering your mortgage rates
- Lowering your monthly payments
- Reducing general sense of stress over financial issues
- Simplifying your finances with fewer collections notices and easier bill paying
- Lengthening your repayment terms (compared to term of previous debts)
- Avoiding increased interest rates and late charges due to missed payments
- Increasing cash flow by reducing total debt and lowering monthly payments
Refinancing your mortgage and consolidating your debts can have many benefits, but only if you go about it the right way. As your mortgage agent, I can utilize my years of knowledge and experience to determine whether any particular mortgage refinance and debt consolidation plan would be beneficial for you. Contact my office today and learn what an experienced, knowledgeable mortgage agent can do for you.
Considering the following scenario.
| CURRENT SITUATION | BALANCE | PAYMENT |
| Mortgage ( at 5.75% interest)* | $160,000 | $1,000 |
| Unsecured line of credit ( at 8% interest) | $18,000 | $540 |
| Credit cards ( at 18% interest) | $15,000 | $450 |
| Penalty for early payout of mortgage | $10,000 | $0 |
| TOTAL | $196,000 | $1,990 |
Now considering an alternative.
| NEW MORTGAGE | BALANCE | PAYMENT |
| Mortgage ( at 2.99% interest)* | $196,000 | $926.56 |
| Unsecured line of credit ( at 8% interest) | Paid Off | $0 |
| Credit cards ( at 18% interest) | Paid Off | $0 |
| Penalty for early payout of mortgage | Paid Off | $0 |
| TOTAL | $196,000 | $926.56 |
