Debt Consolidation Mortgages Explained

If you are a homeowner, you will likely find that your mortgage has the lowest interest rate among all your debts, making it the most sensible option for debt consolidation.

But there are essential considerations to bear in mind.

• The interest rate offered by your mortgage lender for a debt consolidation mortgage may differ from your current mortgage rate.
• Your credit score could be low if you are behind on other payments. This may affect your ability to get the lowest mortgage rate if you refinance your mortgage to consolidate your debts. 
• Additional costs will likely be incurred, such as home appraisals and legal fees.
• You may not have enough equity in your home to pay off all of your debts. You should be able to get up to 80% of the appraised value of your home, minus the remaining mortgage balance.

But here’s the big one.

• If you lose your job or your situation changes and you can’t afford the refinancing loan you took out, you are much more likely to lose your home.

So you need to carefully review the benefits of consolidating with the risk of overstretching yourself and being unable to make the mortgage payment.

The bottom line is that while debt refinancing is a powerful tool, it should be reserved for the highest interest debts where the risk/return payoff is most significant.