Many people use a refinance consolidation loan in order to get out of debt when they feel that they owe so much money to various creditors that they will never be able to handle it separately. There are some ups and downs to this idea and before anyone considers consolidating their debt based on a refinance consolidation loan they may want to consider what this type of refinancing entails.
Essentially, a refinance consolidation loan is using the equity from your home to pay off your debt. People may have personal loans or credit card debt and have allowed that debt get out of control, so in order to group all that they owe into one place they will attach this debt onto their home.
Refinancing your home in order to use the equity you get back to pay off your debt is not really getting rid of what you owe. You are simply placing that debt, which was unsecured, on your mortgage, which if you are unable to pay thanks to refinancing will cause you to lose your home.
In many cases, the interest rate on a home mortgage loan will be lower than the interest on various forms of debt. This is one aspect that is beneficial of a refinance consolidation loan. Attaching debt onto a lower interest rate can be beneficial, but taking a look at the whole picture is going to be necessary.
Depending on the mortgage you have, adding to the amount you owe on your home could either extend the life of your loan or the amount you owe on your home, which may make paying a monthly mortgage payment more difficult. Often times people who have allowed their debt to get out of control may not be the most financially savvy individuals, so the possibility of becoming delinquent or defaulting on their mortgage is higher in likelihood.
Before getting a refinance consolidation a homeowner needs to sit down and figure out if they can combat their debt in another way or if a consolidation refinance is their only option. If a consolidation refinance loan is felt to be the only option it will be vital for a homeowner to be sure they are in a financial position that will allow them to make their mortgage payment, as attaching debt to your home loan will no longer make that debt an unsecured debt source but a sum that if not paid will cause you to lose your home.