Refinancing opportunities for homeowners have brought more affordable payments and lower overall costs for some, as interest rates on home loans have been quite low over the past months. Yet, some homeowners have turned to cash-out refinancing options on their home when they began to refinance in order to erase unsecured debts which may be causing difficulty in their financial life.
While there are some homeowners who have successfully used equity from their homes to erase debt, advisers often warn homeowners against this method of debt repayment as it can be burdensome in the future. Concerns over cash-out refinancing center around the fact that homeowners are simply attaching unsecured debt to a secured home loan, and for some this could be problematic.
However, homeowners who have successfully used a cash-out option on their home loan have been able to meet this higher mortgage debt by simply practicing smarter financial habits. Worry over consumers who use cash-out refinancing to pay off debts, like credit cards, often center around the homeowner and not this specific refinancing opportunity necessary.
Individuals who have allowed certain debts, like personal loans, car loans, or even unsecured credit cards to become overwhelming may be unable to meet higher costs associated with their mortgage or may acquire more unsecured debts after refinancing with a cash-out option. Obviously, homeowners who use their equity to erase debt, thus acquiring a higher mortgage obligation, will be in an even worse situation if they began to accrue more unsecured debt later.
Since cash-out refinancing is simply moving one form of debt and attaching it to another, which doesn’t truly erase debt, consumers who have been successful at refinancing their home loan and gaining money to assist them in other areas of their financial life are simply those who have focused their financial priorities on their mortgage and, for many, drastically reduced methods for acquiring unsecured debt, like credit card use. While many still rely on credit cards in certain areas of their life, advisers who have seen homeowners use cash-out refinancing caution homeowners about continuing to practice poor spending and debt management habits, as an inability to meet debts on their unsecured lines of credit or their mortgage can obviously lead to a very troubling situation down the road.