Debt Consolidation Refinance: More Than Meets The Eye

A big buzz word in the world of mortgage refinance is "debt consolidation". This is the general term used for borrowers who are looking to combine their mortgage with various other debts to lower the total monthly household payments. Typical debts considered for consolidation are 1 st mortgages, 2 nd mortgages, credit cards, installment loans, and student loans. Credits cards are a very popular consolidation item. Maybe an unforeseen incident occurred or an emergency expensed cropped up and the only way to pay was to charge it. Many people find themselves in a position where it is difficult to make their monthly payments as credit card bills stack up. They make the minimum monthly payments and the balance never seems to go down. Credit cards consolidated with a mortgage refinance will typically lower the borrower's overall monthly payment and can get you out of the revolving interest, into a fixed amortized repayment schedule. It is also important to note that a home equity line of credit (HELOC) behaves much the same as a large credit card, only it is secured by your home. A home equity line of credit is also known as a 2nd mortgage.

There can be many benefits to a debt consolidation refinance. The most obvious, of course, is the benefit of a lower monthly payment, but there can be others. Many candidates for a debt consolidation find themselves in a position where their credit balances on revolving and installment credit are at or near the account limit available to them. The credit bureau's magical mathematical algorithms will pick up on this and actually reduce the borrower's credit score, sometimes significantly. The good news is that a debt consolidation will adjust the borrower's debt ratios in a favorable direction, which in turn, should improve the credit scores. Better credit scores will not only help the borrower with future mortgage financing, but will also help the borrower to achieve better terms with just about any other type of loan or credit card. Monthly savings can be used to keep future credit card balances in check, make investments, deposit into a savings account, or a combination of all. A consolidation refinance can also give the borrower a larger tax deduction. Mortgage interest is a tax deductible item, while revolving credit and installment loan interest is not tax deductible. Typical debt consolidation refinances will combine five or more payments into one monthly mortgage payment, which relieves the hassle of preparing so many bills, month after month, not to forget the postage expense (hey, every bit helps). Simply put, the feeling of well-being that comes with debt relief is a benefit that cannot be understated. As you can see, a debt consolidation refinance will more than likely lower the borrower's monthly payments, but there is more than meets the eye.

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