Various financial difficulties, like those related to credit card debt, have caused a rise in arguments in favor of cash-out refinancing for homeowners who can use their equity to erase credit card debt. Obviously, credit cards are a major problem when it concerns letting debt get out of control, as interest rates on cards tend to compile when cardholders simply make minimum payments.
Yet, some homeowners who have equity built up in their home have used a type of refinancing, known as cash-out refinancing, in order to access capital from their home which can be used to erase credit card debts entirely. While, any type of debt or personal financial needs can be met with funds from this type of refinancing, many advisers are cautioning homeowners against using this type of refinancing opportunity.
Homeowners argue that cash-out refinancing, which essentially is attaching unsecured debt from credit cards or other sources to a homeowner’s mortgage, offers them the chance to take a debt with higher interest rates and attach it to the lower interest rate on their home. Obviously, homeowners will continue to pay on their mortgage, but since this debt which may have been causing problems or building due to high interest rates is now attached to a lower interest mortgage, homeowners have been alleviated from financial strain associated with obligations like credit cards.
While this method of refinancing has helped many homeowners over the past month, advisers often point out that in cases where homeowners may have allowed credit card debt to get beyond their control, creating a higher mortgage debt situation may pose similar problems. Obviously, if a homeowner has trouble meeting a higher mortgage payment or mortgage debt amount, there could be trouble’s which may lead to missed payments or, in worst-case scenarios, the loss of one’s home.
There are homeowners who may use cash-out refinancing as a way to gain capital which is then used for investments or other ventures unrelated to debt repayment, and if done properly this type of refinancing has been beneficial for some. Yet, homeowners who feel that using equity from their home to erase their debts may be a good option for their situation may need to make sure they are not only able to erase their debts with the funds they gain from cash-out refinancing, but they must also be sure they can meet this higher mortgage requirement on their home.
Individuals who may have had difficulty maintaining their personal financial lives in the past or those who may be prone to acquiring more credit card debt even after using the cash-out refinancing option may do more harm than good if they use their home’s equity to repay debts. Again, advisers often suggest simply looking at one’s financial practices and situation before turning to cash-out refinancing, as this could cause problems if one’s finances are not properly managed in the future.