Should I Refinance My Home To Pay Off Debt?

Refinancing your home to consolidate debt is a drastic way to reduce a household’s monthly debt payments. While it can be harder to consolidate debt through debt settlement, many people discover that this will be a better option in the long run than refinancing their home.

Today, many American households have more debt than they can reasonably be expected to pay off in less than a year. If you are one of these families, looking at options beyond the typical advice of cutting back expenses and making extra principal payments makes sense. Many families choose to explore debt refinancing and debt settlement in order to reduce their total amount of household debt.refinance second mortgage debt

Is A Second Mortgage A Good Idea To Consolidate Debt?

Inevitably, a household will come across ads to pay off their debts by refinancing a house. There are a large number of second mortgage and cash in refinancing loans on the market today, but they all work in basically the same way. A home loan refinancing will start when an appraiser comes out to a home and assesses its total value. Using this number, a loan offer is written for the total value of the home. Once accepted, a family or individual will use the money from the loan to pay off their first mortgage. Any remaining funds can then be used to pay off other debt. The family is then left with only the one payment from their new mortgage to pay every month.

Obviously, there are a couple of serious risks with this method of getting rid of household debt. To start, in order to take out a second mortgage, you must have enough equity in your home to cover your present amount of debt. If you are part of the 25 percent of American families who are currently underwater on their present mortgage, getting a second mortgage will be practically impossible. Even people who have been making mortgage payments for years have been surprised by how little an appraiser says their house is worth.

If you happen to have enough equity in your home to do a cash-out refinancing, there are still risks, however. In many households, much of their debt is currently held on credit cards or is in the form of medical debt. This means that the companies that hold this debt are unable to take any hard assets of the borrower, such as their car or house. While in some extreme cases a credit card company can garnish wages, this is very rare. As long as debt is unsecured, there is actually very little that a lender can do to force you to pay.

Is It Worth Losing Your Home To Pay Off Credit Card Debt?

When your debt is refinanced through a second mortgage, however, it becomes secured. Essentially, you are using your home as collateral to get a new loan that will pay off all of your unsecured debts. If you miss a payment on this loan, however, you and your family could see your home get repossessed by the bank.

Of course, there are a lot of people who are comfortable with this trade off. Since mortgage rates are currently at an all-time low, it is possible to save hundreds of dollars a month in interest charges by using a cash-out mortgage refinance. People who have very secure jobs or who are able to make the new mortgage payment from government provided funds such as a Social Security check may be good candidates for this method of debt reduction.

Since a mortgage refinance will both lower the interest rate on a consumer’s debt and lower the monthly payment, they can potentially save a household a lot of money. Many people are uncomfortable with the idea of extending their mortgage term, however. Many more are concerned with the idea of using their home as collateral. In the event of a job loss or other personal disaster, many Americans like to count on the security of knowing that they own their own home.

A Better Way To Cut Your Bills Without A Loan Or Credit Check

Determining if refinancing your mortgage to pay off your debts is right for you is a hard decision. Many people decide to use a credit relief professional to help them decide what to do. Fill out our free debt form to get more information about your debt repayment options without a loan or credit check.