Some homeowners turn to a debt consolidation refinance loan when they are facing a large amount of debt and feel they are unable to handle this financial burden. Debt can sometimes arise unexpectedly due to an emergency or a financial strain that an individual has encountered. However, more often than not, people who are in a large amount of debt simply have bad financial habits.
It’s at this point that many homeowners feel a debt consolidation refinance loan will benefit them more so than keeping their debts separate. Essentially, a debt consolidation refinance loan is using the equity in your home to pay off your debt. No debt has actually disappeared, but rather it has been tacked onto your mortgage. The problem many people see in this method is that unsecured debt now becomes secured debt and if not paid can cost someone their home.
There are arguments that consolidating your debt with a refinance loan is going to be more financially responsible since there is a lower interest rate attached to mortgage debt as opposed to credit card debt, in many cases. However, if you want to refinance your home in order to pay off your debt you need to realize that you might run the risk of losing your home if that debt goes unpaid or you may pay more over the long run.
Attaching a higher amount to your mortgage is going to allow the interest to accrue on a higher principle and it’s simply giving you more money that you have to pay back on your mortgage. While some people are easily able to make their monthly mortgage payment and are unconcerned with the overall costs of their home loan, other people may not be in such a financial position.
Taking time to assess your financial health is going to be necessary before seeking a debt consolidation refinance loan. There are ways to deal with the debt outside of attaching it to your mortgage, like making minimum monthly payments on all of your debt except the smallest amount, which you then pay as much as you can towards each month.
However, dealing with debt is a personal option but it needs to be an informed decision. Taking time to weigh the pros and cons and look at the risks of a debt consolidation refinance loan will be necessary before moving forward. Homeowners that may have acquired a large amount of debt might need to develop better financial habits or they could risk losing their home due to their inability to pay a mortgage onto which they have attached their debt.