Homeowners have been in a position in the past where they are able to consolidate their personal debts with the use of refinancing, as some have found that refinancing their home loan using a method known as cash-out refinancing has allowed them to not only get a more affordable rate on the mortgage, but get cash from equity that can be used to pay off various unsecured debts. As rates on home loans have been quite low here in the early and middle parts of May, some homeowners may consider this to be an opportune time where this particular form of debt consolidation and debt relief may be used to their advantage, but of course, this does take some research on the part of a homeowner.
While there are many agencies that have produced averages for home loan rates at the present time, many feel that the 30-year fixed rate is around 4.5%, while other options like the 15-year mortgage could bring rates as low as 3.8%. However, homeowners do understand that it will depend on their personal financial situation as to what rate they get, and some homeowners may not be able to refinance for rates at these low levels. Many homeowners felt that rates would continue to increase in 2011, but recent dips have some considering their refinancing options, as 2010 brought record low interest rates to homeowners who were able to refinance their home loan for more affordability in certain areas.
Yet, when it comes to homeowners using cash-out refinancing, these rates and a homeowner’s situation must be considered before any action is taken, as this type of debt consolidation and repayment is not going to be beneficial for everyone. Ideally, homeowners who have equity built up in their home but may also have a substantial amount of debt will be able to refinance their home loan for a lower rate, which could bring more affordability in terms of their monthly mortgage payment or overall costs if they shortened the life of their mortgage, but also, homeowners will essentially place unsecured debts onto their mortgage as they refinance for more than they owe on their home, and doing so will help them erase these unsecured debts outside of their home loan obligation.
Obviously, homeowners realize that there can be benefits in this type of refinancing, but there are dangers that could arise if a homeowner simply cannot meet this higher cost since, again, unsecured debts are going to be placed onto a mortgage, in essence, and could cause a longer repayment timeframe or higher overall costs to be met. If a homeowner fails to pay this obligation on their home loan, they can lose their house and, obviously, do a substantial amount of damage in their financial life. For this reason, among many others, advisers are suggesting that homeowners look at the pros and cons of this type of refinancing and how it relates to their personal situation, make sure that if they refinance for a cash-out option they will find more affordability through a lower interest rate and can simply meet the costs associated with this type of debt consolidation opportunity before proceeding.