Homeowners have had opportunities for mortgage refinancing with the particular goal of debt consolidation through the use of their equity, as some have turned to options like cash-out refinancing or similar options like a home equity loan as a way to consolidate debt and begin the process of paying off these obligations that may otherwise have been quite burdensome. Understandably, homeowners who feel their home loan is a long-term obligation and, as a result, feel that attaching other unsecured debts onto their home loan can be helpful since, if these debts are no longer an issue in terms of multiple payments and interest rates, a consumer may be able to focus their funds on their home loan payment and erase this consolidated debt along with their mortgage.
Furthermore, many homeowners have seen record low interest rates over the past year and according to various sources mortgage rates have fallen, so when a homeowner is in a position to take advantage of these rates, refinancing their home loan to use their equity as a way to consolidate debts has been more of a temptation for homeowners who may be suffering from various personal loans, credit card debts, or other obligations like student loans.
However, when it comes to a homeowner’s best interest, refinancing may not always be the best route that should be taken if debt relief is needed, as there are some individuals who have successfully been able to attach unsecured debts to their mortgage through options like cash-out refinancing, but when a homeowner is unable to meet this higher mortgage obligation, it could result and the loss of their home. While some homeowners who refinance may find more affordable monthly payments, a higher overall principal amount can lead to higher overall costs in the long run for a homeowner seeking to consolidate their debt.
For this reason, financial advisers counsel many homeowners who are considering this type of refinancing to look at a few aspects of what it will mean for their personal financial situation. As an example, homeowners who are struggling with debt and feel that refinancing their home loan to receive cash back that will be used to pay off debts may have options to erase these troubling debt sources in another way without putting their home at risk. While credit counseling, simple budgeting techniques, or more extreme options like a debt management plan could be helpful for homeowners in a bad financial situation, seeking out help with debt relief first or by exploring personal budgeting habits before refinancing could all be methods that a homeowner uses other than refinancing.
Yet, if a homeowner feels that this type of refinancing is best for their particular situation, other factors like a homeowner’s credit score, the amount of equity they have in their home, and closing costs related to cash-out refinancing are all areas that a homeowner must look at in relation to their particular situation. Some homeowners may be able to refinance and get a lower interest rate on their home loan, as well as, the funds they need to consolidate their debt, but fees associated with this option could cause the benefits a homeowner would have gained to be lost, as they could be better off combating that separately. Essentially, homeowners need to make sure that they are in a financial position to pay off a higher mortgage obligation if they use debt consolidation for their personal finances, and before even taking this route, they will need to have considered alternative options as, again, attaching more debt to a secured obligation like a mortgage can be much more problematic in the long run than simply combating unsecured debts at the present time.