As we begin the month of July there are homeowners who have been considering ways to consolidate various personal debts which could be either causing problems in their life or may simply be quite costly when all of the interest rates and payments are factored in, but some homeowners are looking at the current housing market as a way to find a solution. With rates on home loans quite low at the present time, in some cases being around 4.5% or less, some homeowners have opted to explore cash-out refinancing as a way to not only get a lower rate on their home loan, but also acquire the funds they need to pay off debts. Yet, what homeowners must explore is whether this particular form of debt relief will be best for their situation, and grouping unsecured debts with a home loan can come with complications.
Homeowners who have successfully used cash-out refinancing to their advantage will refinance their home for more than they actually owe, usually in the amount of the debts they wish to pay off, and if a homeowner qualifies they will get a lower interest rate plus the money to pay off various debts like credit cards, car loans, or in some cases even student loans. However, homeowners must not only look at the types of debt they wish to pay off but the costs that will be associated with refinancing with this cash-out option before they make any decisions.
There are, once again, some homeowners who may find that the fees and closing costs with refinancing could outweigh any advantages of using this cash-out option to pay off debts as the interest they will pay on other obligations may be less expensive than closing costs on their refinance agreement. Also, homeowners may be in a position where they simply cannot afford these costs or might not get a reduction in their interest rate when they refinance that will be beneficial, in terms of offering them more overall affordability when it comes to paying off debts and their home loan as well.
Homeowners have to also keep in mind that increasing the total amount available on their home will take longer to repay and, even if lower rates are acquired through refinancing, this could lead to higher overall costs too. Yet, homeowners are usually in a position where they can calculate the overall costs of either paying debts separately or using cash-out refinancing to consolidate what they owe, but one factor that often goes overlooked is how this debt consolidation option could hurt a homeowner if they are unable to pay.
Essentially, cash-out refinancing will attach unsecured debts to a homeowner’s mortgage obligation, and if this is not paid off under the refinancing arrangement, homeowners will find that unsecured debts which may have previously simply caused a reduction in their credit score if payments were unable to be met could lead to the loss of their home. It’s for this reason that, even though cash-out refinancing can potentially save some homeowners money and help them get out of debt with less strain, it could also cost a homeowner their property if this higher mortgage debt obligation cannot be met.