Cash Out Home Loan Refinancing Considered By Homeowners To Pay Off Debts–Why Homeowners May Not Benefit

For some consumers we have seen indications that debt relief has become a main priority as spending, credit card use, in other areas of consumer financing may have some worried about their ability to honor debts and, as a result, consumers are simply looking for ways to get out of debt and save more, which has led some to turn to their home as a way to pay off certain debt obligations. Commonly, consumers have used cash-out refinancing or home equity lines of credit as a way to get the funding they need to pay off multiple debts that may come with various interest rates, but this has led to some officials become concerned as to whether homeowners are weighing all the pros and cons of this type of debt relief.

Currently, rates on home loans remain around 4%, as we have seen increases in the common 30-year mortgage, but this particular home loan among others is still seeing record low rates that may be available for homeowners as well. Yet, homeowners may see rates on home equity lines of credit in a similar range of a little over 4% to 6%, but these are optimal rates that will not be available for every homeowner and, as a result, is one of the first areas where homeowners considering using the equity for debt relief may fail to calculate what their actual rate will be.

Simply put, some homeowners often look at these prime rates and fail to realize that they may not qualify for this particular rate if they refinance with a cash-out option, and it could lead to higher costs than what they had originally planned. Yet, some homeowners are in a position where they have seen the option of getting an affordable rate when they use cash-out refinancing or a home equity line of credit, but there are other costs that some homeowners fail to consider as well as fees associated with refinancing could offset any benefits that are received from a lower rate or more affordability on a refinance option that a homeowner chooses.

In the past we have seen cases where homeowners may not benefit from this particular type of debt relief plan simply because of the smaller principal amounts on the debts they wish to consolidate with their home equity, as their credit history, rating, or other financial factors will obviously impact the rate they receive, but also some homeowners may find that paying off these debts separately through various debt relief programs could be faster and also allow them to avoid putting their home in danger if they are unable to honor a higher mortgage amount.

Many consumers often debate over whether a home equity line of credit will be best or if cash-out refinancing will work better for their situation, but as we see more consumers focusing on debt relief, with the potential for using their home equity for these purposes, officials are currently cautioning homeowners to remember that failure to pay a higher debt obligation as a result of using cash-out refinancing, among other options, to pay off debts may bring about foreclosure, whereas unsecured debts can be addressed apart from a mortgage, and with the guidance of resources like credit counseling agencies or even help directly from lenders, homeowners may be able to avoid refinancing altogether when it comes to paying off debt obligations.