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Refinancing Your Home in Face of Debt Staff - Mortgage Lenders Plus.com

Debt consolidation refinance usually means refinancing your home in some fashion in order to raise cash at a reasonable price to pay down expensive short term debt. There are credit card companies that offer near term low interest rates and invite you to transfer your debts onto their ledgers. Unfortunately, those low rates are usually short lived and will jump into standard credit card interest rate range long before your debts are paid off.

Using your home for debt consolidation refinance provides three options that many thousands of homeowners have used in recent years. Low interest rates have made refinancing first mortgages a fiscally sound notion for people who intend to stay in their home for the foreseeable future. Some people will add debt to their new mortgage which is collateralized by the equity they hold in the home, and use this cash to pay off expensive debt. This form of debt consolidation refinance makes sense, as long as the addition of the equity debt does not drive up your mortgage interest rate or put additional requirements for mortgage insurance into play.

A home equity loan is going to have a higher interest rate than a principal mortgage. It will also have loan origination and closing costs; it is, in effect, a second mortgage. But home equity loans are a principal source of debt consolidation refinancing for homeowners in the U.S. A home equity loan will both lower the interest rate on your credit card debt when you pay off those cards with cheaper money, and it will stretch out the repayment on those debts over a number of years.

The result is a lower monthly outlay for accumulated debt. It does not mean that your debt has been reduced, however – a home equity loan ups the ante a little when it comes to credit debt, because default on a credit card is simply going to bring a poor credit rating and a few collection agencies calling. Defaulting on a home equity loan could cost you your home.

A home equity line of credit (HELOC) can also be used as debt consolidation refinancing. HELOCs carry lower interest rates than home equity loans, although they are typically adjustable rate arrangements whereas home equity loans have fixed interest rates. With a HELOC, you can draw down only the amount you need to deal with your immediate needs. The important part of this process is not using that portion of the HELOC that is left over after you pay off your consolidated debt to run up new debts. Old spending habits can become dangerous when you are playing with cash advanced against your house.