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Refinancing Your Mortgage To Pay Off Debts
   

Your home is not only your biggest investment but also your biggest asset. Homeownership covers over a multitude of sins, especially the financial kind. If you are a homeowner, and you find yourself up to your eyeballs in debt, perhaps credit cards that have gotten out of hand, medical bills, or just some emergency car repairs that you have no idea how to pay for, then a home can provide the proverbial out of the misery. Of course, whenever involving your home in an attempt to make your debts go away, it is important that you shop around, ask lots of questions, and read the fine print carefully! A wrong step can set you back financially for decades, while a right step can get you out of debt with the stroke of your pen.

You may wish to refinance your mortgage and pay off debts. While this is a great idea, you need to make sure you are not only ready to take this step, but also that it is financially advantageous for you to do so. Here are some suggestions:

Do not take this step unless you are drowning in debt. Most debts are unsecured, meaning that your creditor does not hold ownership of an asset to ensure that she or he will get paid. Your mortgage company holds ownership to your house, and your car loan company holds the pink slip to your car, but your credit card company holds virtually nothing they could demand from you if you decided not to pay them. Thus, whenever you are contemplating to use your home to pay off a credit card, you need to keep in mind that you will now switch this relationship with the lender, to where any inability to pay on your part will cost you your home.

If you are not drowning in debt, but perhaps are simply inconvenienced by it, sit down and chart a course out of debt. Perhaps you want to use the snowball principle and pay off the credit card with the lowest balance on it. To keep from using the card, simply cut it up. If you cannot stomach the idea of cutting up a source of cash, go ahead and put it in a zip lock bag with water and stash it in the freezer. When it is safely ensconced in ice, you can still get to it if you absolutely feel the need to, but you won’t be tempted to just take it out on a shopping spree. Once the card is paid off, apply the monthly payment you made to it to the next card that has a low balance in addition to the usual monthly payment. The idea is that your ability to pay off debts will snowball and you will be able to pay them off faster.

If you have decided that it will take you decades to pay off all your debts, and want to go ahead with a refinance of your mortgage to consolidate them and pay them off, be sure that you are getting a good bank rate. The market is competitive, and lenders will offer you different loan options, often on the same product. You will need to decide if you want to pay point to get an overall lower interest rate. Depending on the value of your home and the additional funds you will need to borrow, these points could be high – perhaps as much $20,000 – so be aware that this is yet another figure that will be rolled into your loan. Impounds will also affect the interest rate you can expect – some lenders will give you a slightly better rate if you choose to impound your taxes than pay them yourself.

Be wise when it comes to choosing adjustable rate mortgages over fixed mortgages. You probably get the periodic mailers that offer you mortgage rates at unbelievably low increments, such as one percent. Yet beware! This teaser rate is usually only in effect for one month, and a teaser rate in a mortgage loan will have costly consequences! The cap is quite often set at 12% and you will quite possibly not be able to afford your monthly payment when it creeps up to this figure.

Most importantly: make sure you do not run up your revolving credit once you paid it all off. Otherwise you have your old debt back, and the new mortgage with a higher payment, and you may not be able to handle both.

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by SolveYourProblem.com : 2007

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