Due to the fact that there are currently low rates available when it comes to refinancing a home loan, some homeowners have begun to consider whether using a cash-out refinance option is going to be helpful for their situation when it comes to consolidating and paying off debts. Obviously, there are many homeowners who are in a position where refinancing could bring a much lower rate on their mortgage, but for those who have equity built up in their home and debts from other sources like credit cards, refinancing and using a home’s equity to pay off the obligations may offer the debt relief that many homeowners are currently seeking and bring about lower home loan payments each month.
Yet, advisers often point out that this particular type of refinancing option is not always as simple as it would seem, due to the fact that it is transferring unsecured debts like credit cards or unsecured personal loans onto a secured home loan obligation. This will obviously create a higher home loan debt amount, despite the fact that homeowners may have seen a decrease in their mortgage interest rate and more affordable monthly payments as well. Some homeowners may refinance for a longer mortgage term, which when coupled with a lower interest rate could offer more affordable payments than what they currently have but with this particular type of refinancing they are increasing the overall amount of debt they will have to repay.
Furthermore, when it comes to refinancing in this fashion consumers may run the risk of losing their home if they cannot combat this higher mortgage debt amount as there are some cases where using cash-out refinancing could actually impacted the overall reduction that is seen in a homeowner’s mortgage payment. Simply put, if a homeowner refinances for a lower mortgage rate at current levels, but uses cash-out refinancing to take equity from their home it will obviously increase the mortgage debt amount they may have and no matter if a homeowner opts to extend their term it could lead to a higher monthly payment than they would have received had they simply refinanced in the traditional manner.
However, there are some homeowners who argue this particular type of refinancing can be beneficial if a homeowner happens to be in the proper position. While some feel that refinancing can be helpful when it comes to erasing debts because the money that is being saved which would otherwise have been going to pay off their mortgage may be used to pay off other debts first without attaching these obligations to a home loan. Yet, some homeowners look at interest rates on their unsecured debts and, in some situations, may be combating a much higher interest rate level overall and feel that attaching these debts to a lower rate associated with their mortgage could save money.
This is where it comes down to a personal decision on the part of the homeowner and with any financial decision it should only be made after careful calculations and consideration in relation to a homeowner’s personal financial position. Some homeowners do indeed benefit from this type of refinancing in the long run but others may run the risk of losing their mortgage or meeting higher overall costs as a result of increasing their mortgage debt but costs like fees for refinancing and even the ability to get a substantially lower rate must also be calculated so that a homeowner can better decide if this refinancing option or if refinancing in general will be best for their situation.