There are many reasons why home owners might decide to refinance on their home’s mortgage loan. Some reasons may be better than others, such as getting cash to make payments for projects that improve your home and add value or getting money needed to compensate for emergencies that pop up out of nowhere. However, there can be some motivations for refinancing on your mortgage that are not as positive, and if you are thinking of refinancing your home for a bad reason you may want to take a step back and rethink. One of these reasons that usually carries a negative connotation when it comes to refinancing your mortgage is debt consolidation. Refinancing your mortgage to consolidate debt can be a dangerous move. We will discuss why refinancing your mortgage to consolidate debt is not such a great idea and the risks that are associated with doing it.
Why Consolidate My Debt?
Refinancing on your mortgage to get cash to help you consolidate your debt is one of the most common reasons why people might choose to refinance their mortgage. Homeowners do this to move where their debt lies into their home. This way they can make payments on their debt in one place with a lower interest rate over a longer period of time. This way they can relieve external debt and make smaller regular monthly payments.
Is It a Good Idea?
While consolidating your debt can generally be though of as a good thing, it can turn bad depending on the methods you use to accomplish the task. Doing it wrong can be very dangerous for individuals, and can even lead them to an even worse financial position than they were in before. It may seem like a good idea to move your debt into your home because the interest rate on your mortgage is lower than your external debt payments, but you increase the risk of what you might lose when you do this. If you fail to pay something like credit card debt it will likely just damage your credit score. However, if you fail to make mortgage payments on time you risk being foreclosed and losing your home. Not to mention, sometimes homeowners with credit card debt might feel tempted to start spending money they do not have again once their debt has been repaid. So, be careful with refinancing your mortgage to consolidate debt, and only do it if you are absolutely sure you can make payments on your mortgage moving forward so that you do not lose your home. But, if you do not trust yourself to remain fiscally prudent after moving your debt into your home, you should look into debt relief options other than refinancing the mortgage on your home.