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Relief & Debt Consolidation
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Is
Refinancing Your Home a Smart Debt Consolidation Move?
If bills and debts are putting the squeeze
on your budget, it is only natural to look for a quick way
out. If you are a homeowner, and if your home has appreciated
in value, you might be tempted to look to your home as the
asset that can give you the necessary cash needed to pay off
your debts, but be careful! Refinancing your home is not a
smart debt consolidation move in all cases. Here are some of
the reasons why you should hold off:
You were able to secure a favorable interest when you originally
financed your home, and the rates that you could get now, if
you were to refinance, are dramatically higher than the one
you have. It would not be a good idea to refinance a high dollar
asset at a less than favorable rate to pay off your debts.
Perhaps a home equity loan would be a wiser choice in this
case.
You
can barely afford your mortgage payment at the current
rate. If your monthly mortgage payment is putting a tight squeeze
on you already, crunch the numbers of your budget to see if
the funds that you will free up when paying off your debts
will make up for the increase in payment you will see when
you refinance your home to pay off your debts. If it does not
look like you will free up enough money, then it does not look
like a good idea to refinance your home at this time to pay
off the debts.
If the only way to make ends meet is to refinance your fixed
rate mortgage with an adjustable rate one it is time to proceed
with extreme caution! A fixed rate mortgage at a good rate
is worth much, whereas an adjustable rate mortgage offers little
guarantee in today’s volatile market place. Granted, some adjustable
rate products will offer you security for five or seven years,
but after that you might find yourself on a rollercoaster ride
of skyrocketing interest rates.
You should hold off on refinancing your home to pay off debts
if the debts have not reached critical mass but are simply
putting a tight yet manageable squeeze on your budget. For
example, if you can afford to pay your debts, but you do not
have a lot of money left over every month, you may need to
look for ways to rework your budget to trim off some of the
fat. This will permit you to perhaps have a bit more disposable
income, pay off some debts quicker, and overall give you some
breathing room without tinkering with your biggest asset’s
financing.
Stay
away from refinancing your home for the purposes of debt
consolidation if you do not think you can survive without your
credit cards. If you need your credit cards to pay for food,
gas, and other necessities every month, you will sooner or
later be back in the same boat: with a lot of debt. Instead,
rework your budget and cut out those things that are making
you live above your means. If you have a health club membership,
you may need to cancel it to free up some money for food. If
you like going to restaurants, you will need to severely curtail
it in order to free up some gas money. Continue on in this
fashion until you get to a manageable budget that will permit
you to pay for life’s necessities out of your pay, not out
of your credit. Once you have achieved this step, and you now
could live without your credit cards to sustain you, then you
can contemplate whether or not refinancing your mortgage is
necessary to get your debts under control.
Do not refinance your home if your income is threatening to
become unstable. If your company is being bought out, or if
it is merging, you might want to wait until the dust settles
before you take on a bigger home loan.
As you can easily see, refinancing seems like a great idea,
but it will not always be in your best interest to do so. Additionally,
what might look like a good idea today, may actually come back
to haunt you tomorrow if your financial situation suddenly
changes without warning.
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by SolveYourProblem.com
: 2007
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