Homeowners who are in a decent financial position have, in the past, been able to benefit from cash-out refinancing on their home loan as a way to erase various debts associated with their personal financial life and, in some cases, this has been beneficial for those who properly use this opportunity to get their financial life back on track. Essentially, homeowners who use this refinancing option are consolidating their debt and attaching it to their mortgage, which usually comes at a lower interest rate and can offer more affordability, in some instances.
While there are opportunities for homeowners to use this option, there are advisers who feel that homeowners that attach unsecured debt to their home may face more difficulty down the road rather than seeing benefits from erasing various debts through this cash-out consolidation opportunity. Ideally, homeowners who use-out refinancing will erase these various sources of debt and, again, attach this overall principal amount to their mortgage. Then, homeowners will begin to budget and repay this higher mortgage amount by focusing payments on their home loan requirement and avoid racking up additional debt in other areas.
However this is where many advisers worry that homeowners may slip up and put themselves in a worse financial position than had they kept their debts separate. Some counselors feel that attacking various unsecured debts one at a time can be easier to combat due to the fact that a homeowner could more easily erase principal amounts on smaller forms of debt than on one large, secured home loan debt obligation.
The time that it takes to repay this more costly home loan could result in higher overall costs, even though a home loan mortgage interest rate may be lower than rates that were attached to the debts consolidated through cash-out refinancing. Yet, there are homeowners who have been able to erase their mortgage in a timely manner and, depending on their past debt predicament, may have benefited more so after cash-out refinancing.
However, homeowners are advised to be cautious due to the fact that the inability to meet a higher mortgage obligation will result in the loss of one’s home, whereas defaulting on unsecured debt like credit cards could do damage to one’s credit score, but would not result in such an extreme action being taken, like the repossession of one’s property. Since there are both benefits and drawbacks to cash-out refinancing, homeowners have been prompted to either consult credit counselors or housing counselors as a way to get a better gauge as to where they are in their financial situation and home loan predicament.
Homeowners who are considering cash-out refinancing and also wish to consult a counselor are advised to heavily research these credit counseling or housing counseling agencies as there are fraudulent organizations that can also cause financial trouble in the lives of homeowners, but before entering into this type of refinancing, homeowners do need to pause and consider how it will affect their personal financial life and whether or not it will be in their best interest in the long run.