A home is often an individual or family’s largest asset. Because of this – and because mortgage interest rates are often lower than rates on items like credit cards – paying off debt is a big reason why people refinance their mortgages.
A debt consolidation loan is a new loan with a balance that’s larger than that of your existing mortgage. You use the cash difference to pay off other debts – typically those with higher interest rates, such as credit card balances.
First, take a look at the outstanding debts you want to pay off: credit card payments, car loans or student loans, for example. Consider their current balances, minimum payments and interest rates. Then compare a mortgage refinance against other options for debt consolidation, such as a personal loan. Throughout the process, it’s important to remember that debt consolidation doesn’t lower your overall amount of debt; it simply rolls all loan balances up into a single loan. You should also consider that the debts that you may be consolidating/paying off are typically not secured by your home. If you consolidate those debts with a debt consolidation mortgage loan and you fail to meet the repayment terms of your new mortgage, you could lose your home.