There are several interlocking reasons to consider refinancing your mortgage. When rates are low, you can lower your monthly payment and/or the total amount of interest you will pay over the life of the loan. You may also want to take out some equity to finance home improvement projects or pay off other debts.
If a mortgage refinance is being considered to consolidate existing debt, there are a few negatives that should be taken into consideration.
Refinancing your home is very document intensive. You will need to reproduce all the personal information you provided when you purchased your home. Also there are loan fees attached to home refinance that should be considered.
All that takes time and can cost you a substantial sum of money before the process is complete. You'll want to be sure to run some realistic calculations before making a final decision. Online calculators to help you do that are readily available.
Some decide to take the plunge of refinancing their mortgage simply to get out from under credit card debt or other loans that carry high interest rates. That is a big step to take. There are other much simpler ways to payoff high interest debt.
One thing to consider is a second mortgage or home equity loan on your home. This may be a feasible option if you have equity in your home and decent credit scores. It takes less effort than a first mortgage, though you will find the interest rates to be slightly higher. Also you are taking a lower risk on your home. As long as you are making your first mortgage payments, even you if slip a little on your second mortgage payments it is not likely that your home will be foreclosed on.
The second reason is more fundamental. Rather than continuing to seek a way out of debt by borrowing yet more money, you should first make serious efforts to reduce your dependence on borrowing. Some readjustment of current debt may be a good plan - if you can achieve a lower total outstanding debt, a lower interest rate or negotiate relief from some of the payments.
By making a new loan to try to solve the problem you dig yourself that much deeper into debt. It may be necessary but should be the last option you consider, not your first choice.
About the Author:
Is secured debt consolidation a good choice for getting your debt paid off? Find out more about what it is and whether it's a good choice or not on the Debt Smackdown website.
No comments:
Post a Comment