Refinancing options for homeowners who are looking to erase certain debts have come in the form of cash-out refinancing plans which use home equity as a way to provide capital for unsecured debt repayment. However, questions over whether homeowners should use cash-out refinancing have arisen as there could be problems associated with this type of refinancing plan.
While some homeowners may be in a financial position to benefit from cash-out refinancing, many financial advisers often caution homeowners against using this form of refinancing to simply access capital which they can use to pay off debts. Many homeowners who may have personal loans or credit card debts use equity in their home through this refinancing opportunity as a way to erase their debts, and allow them to simply focus on major debts like their mortgage.
However, cash-out refinancing is essentially consolidating unsecured debt, as it truly doesn’t erase these forms of debt which homeowners may have. Homeowners argue that attaching unsecured debt to a home loan is more of beneficial as mortgage interest rates can be quite lower than interest rates associated with personal debts.
Yet, if a homeowner uses their equity to erase various personal debts, it could point to the fact that money was mismanaged and, as a result, a homeowner was unable to pay these debts down due to poor financial practices. Advisers are concerned that homeowners who increase the amount they owe on their mortgage by using cash-out refinancing could find themselves in a difficult financial position in the future and, if unable to meet their mortgage payment obligations, could lose their home.
While, there are homeowners who have successfully used cash-out refinancing as a way to erase various debts, financial advisors suggest that homeowners who do opt for cash-out refinancing opportunities be sure that they focus as much money as they can on paying down their mortgage obligation and avoid acquiring more debt, as this could lead to further financial troubles in the future.