With consumer debt in the United States reaching $2.4 trillion and the recession pushing many families toward fiscal disaster, many people are looking for an easy way out. Debt consolidation has become a hot trend, with a number of organizations popping up to consolidate debt together into one lower monthly payment. For homeowners, the option of rolling debt into a mortgage can be appealing and has the potential to save hundreds of dollars in interest, but comes with some caveats.
For those interested in consolidating debt into your mortgage, here are some points to keep in mind:
1. Talk to a financial specialist (loan officer) first. To cover your credit card debt with your mortgage, you will need to refinance for an amount greater than before and use the excess to pay off the credit cards. A financial specialist can help determine if this is feasible in your case, as sometimes fees for refinancing can wipe out whatever gains you would have made. They can also determine if it might be better to pay with a home equity line of credit instead.
2. The interest rate not only is reduced, but you can actually make it work in your favor. When you consolidate credit cards into your mortgage, you will be paying a lower interest rate and will also be able to write off that interest on income taxes.
3. Keep paying the credit cards. Just because you are in the process of rolling them into a mortgage does not mean you can take a break from paying them. Doing so would put you at risk of late fees or even having the debt sent to a collection agency.
4. Plan on staying put. Because you will now carry a larger mortgage that includes credit card debt, financial experts say you should not plan on moving for several years after the refinance takes place. Paying off the large debt will not happen overnight, so it’s best to have some patience with the process.
5. This is not for everyone. Homeowners who have a high loan to value –which is real estate jargon for owing close to what your home is worth–might be putting themselves at more risk if they add to the mortgage. Likewise, those with relatively low debt or who will be paid off within a few months or a year would not need to go through the hassle of a refinance.
Visit www.paramountequity.com/mortgage and talk to a Financial Specialist