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Debt Consolidation through a Cash Out Refinance: Good Idea or Disaster
If you want to get a debt consolidation loan to repay credit card debt, and you own a home, should you get a new mortgage, or do a cash out refinance on your existing mortgage?
Both are forms of debt consolidation; here is how they work.
If you own a home with sufficient equity, you could get a new mortgage to pay off the old one. If your current mortgage is $100,000, and you need $50,000 to repay your credit card debts, you could get a new, $150,000 first mortgage. The first $100,000 goes to repay your existing mortgage, and the additional $50,000 goes towards your credit card debt. You end up with no credit card debt, and a $150,000 mortgage.
In a debt consolidation loan through a cash out refinance deal, instead of getting a new consolidated first mortgage, you get a new second mortgage. Continuing our previous example, instead of getting a new $150,000 first mortgage, you keep your $100,000 mortgage and get a new second mortgage for $50,000. You are getting cash out of your house, which is why it is called cash out refinancing.
Which is a better deal? The answer depends on a number of factors, including interest rates.
If your current first mortgage is at a low interest rate, you probably want to keep it in place; borrow the extra money you need with a new second mortgage. However, if your first mortgage is at a higher interest rate, and you can negotiate a lower combined rate on a new mortgage, the new mortgage may be the way to go. Beware of the fees and penalties to break your mortgage, which must be factored into the calculation.
Other factors to consider will be the length of the remaining term on your mortgage, and your tax bracket, since in the United States interest on your mortgage on your home is tax deductible, so mortgage debt is preferable to credit card debt.
Consult a mortgage expert to help you make the decision. Either way, a mortgage almost always has a lower interest rate than your credit cards, so whether it is a cash out refinance or a consolidation on your existing mortgage, evaluate your options, and pick the one that is best for you.
Bernard Johnson has many years experience advising people on debt consolidation loans. Visit http://www.debt-consolidation-loans-information.com for information about refinance debt consolidation and how to get a debt consolidation loan
More Useful Resource and Updates on house refinance rate
- Expectations lowered for mortgage aid program (Connecticut Post)
WASHINGTON -- The government expects only 20,000 troubled borrowers will be able to refinance into more affordable home loans by next fall under a new mortgage aid program passed by lawmakers over
- Aaround the nation | Mortgage aid program's projections shrink (The Myrtle Beach Sun News)
WASHINGTON Mortgage aid program's projections shrink The government expects only 20,000 troubled borrowers will be able to refinance into more affordable home loans by next fall under a new mortgage aid program passed by lawmakers over the summer.
- U.S. home-loan applications fall 20.3% (Providence Business News)
APPLICATIONS TO REFINANCE fell 27.8% last week, to 42.9% of applications, as interest rates on fixed-rate loans crept skyward, the MBA found.
- Mortgage applications fell 20.3% last week: MBA (Market Watch)
Mortgage applications filed last week fall a seasonally adjusted 20.3% compared with the previous week, as rates on fixed-rate mortgages increase, the Mortgage Bankers Association reports on Wednesday.
- US mortgage applications slump to 8-yr low (The Economic Times)
US mortgage application demand skidded last week to an eight-year low, driven by a nearly 30 per cent slump in demand to refinance home loans as borrowing costs rose.
- Mortgage aid program gets little attention (The News Journal)
WASHINGTON -- The government expects only 20,000 troubled borrowers will apply to refinance into more affordable home loans by next fall under a new mortgage aid program passed over the summer.
- Response slow to mortgage swap program (The Kansas City Star)
WASHINGTON | The government expects only 20,000 troubled borrowers to apply to refinance into more affordable home loans by next fall under a mortgage aid program approved over the summer.
- Mortgage aid idea falling short (The Scranton Times-Tribune)
ASSOCIATED PRESS WASHINGTON ? The government expects only 20,000 troubled borrowers will be able to refinance into more affordable home loans by next fall under a new mortgage aid program passed by lawmakers over the summer.
- (AFX UK Focus) 2008-11-05 12:15 US mortgage applications slump, costs increase-MBA (Interactive Investor)
NEW YORK, Nov 5 (Reuters) - U.S. mortgage application demand skidded last week, driven by a nearly 30 percent slump in demand to refinance home loans as borrowing costs rose, a trade group said on Wednesday. The Mortgage Bankers Association's seasonally adjusted mortgage applications index, which includes both purchase and refinance loans, slid 20.3 percent to 379.9 in the week ended Oct. 31. ...
- Low hopes for new mortgage program (Standard-Examiner)
WASHINGTON -- The government expects only 20,000 troubled borrowers will apply to refinance into more affordable home loans by next fall under a new mortgage aid program passed by lawmakers over the summer.
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