If you are a homeowner with significant debt, refinancing might solve your debt problems. Mortgage refinancing is a popular debt consolidation loan option. A debt consolidation mortgage loan allows you to get a new mortgage, at a lower interest rate, and also pay off some of your creditors. However, you are not actually paying off your debt. You are simply moving it from a number of individual lenders and credit companies into a refinance loan. This has both positive and negative effects.
Positive Effects of Consolidating Debt with a Refi
When you refinance to consolidate your debt, you are taking your existing debt and rolling it into monthly mortgage payments. This can help you in a few different ways. If your existing debt, such as credit card debt, personal loans or vehicle loans, have high interest rates, a lower interest cash-out refinance consolidation will allow you to put more of your dollars towards principal and less to interest. It also eliminates the need for multiple payments each month, as your mortgage payment will now cover the debts you consolidated, too. A consolidation refinance can also lower your monthly payment by extending the term of your loan, allowing you to repay the debt over a longer period of time.
The benefits of consolidating debt through a refinance can get away from you if you do not act carefully. In order for mortgage refinancing to benefit your debt consolidation efforts, you need to get a loan with a monthly payment that you are very sure you can handle. However, your debt and the balance of your existing mortgage might be so large that it will result in an unaffordable payment. If you do decide to refinance, regardless, you could be stuck with large monthly payments you struggle to pay off each month. That’s why its important to sit down with a professional, who will explain all of the options available to you. The professionals at Northeast Funding Services have helped thousands of homeowners just like you. Call today for more information.
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