Refinancing to Pay Down or Consolidate Debt
Americans have accepted living with debt. According to NerdWallet.com, as of October 2015, the average U.S. household consumer carries $16,140 in credit card debt and $31,946 in student loan debt. Additionally, credit card interest rates can vary between 13% and 16%, which increases the amount owed unless paid down significantly. And if you include the average auto loan, that’s another $28,711 being financed (per debt.org).
Clearly, these are large and intimidating financial figures for the majority. It’s understandable that most people would want to pay off these obligations as quickly and efficiently as possible and at the lowest interest rate as they can.
That’s why many people investigate the option of refinancing their existing mortgage. If this is the right option for you, CrossCountry Mortgage, Inc. will be there to help you get pre-qualified and support you through the refinance process.
Advantages and Disadvantages
Let’s take a quick look at the advantages and disadvantages to gauge your need to refinance.
- Mortgage interest rates tend to be significantly less than interest rates associated with credit cards, auto loans and student loans. In some cases, they're two or three times less, so over time, refinancing at a much lower interest rate can save a lot of money.
- Having many bills to manage each month takes a lot of time. If you're getting bills for a car payment, a student loan and credit cards, then there's a lot of paperwork. Refinancing allows you to consolidate all of this paperwork and debt into a single monthly bill and payment.
- Mortgage interest can be tax deductible in some cases, where as other kinds of interest payments are not. Please consult with a professional tax advisor before refinancing so you can be sure.
- Realize that by refinancing, the debt doesn't actually go away. It's being reorganized. So it's important to recognize that it is spending behavior that created the debt originally. To avoid doubling the debt, there needs to be a change in habits and an attempt to pay more toward the debt to pay it off faster. Otherwise, there's a risk that more debt can be accumulated.
- When consolidating debt into your mortgage, you're putting your home at risk if you cannot repay the loan, so it's important that if you decide to refinance that you're modifying your mortgage to more favorable terms- whether that means a lower rate or a shorter time period.
- There are costs associated with refinancing. In some cases, these costs can be absorbed into the refinanced mortgage and are spread out over time, but these costs should not be overlooked.