Reasons for Refinancing Your Mortgage to Effectively Consolidate Debt

Reasons for Refinancing Your Mortgage to Effectively Consolidate Debt

Refinancing to debt consolidation mortgages could lead to significant cost savings provided you are disciplined and consistent with all your payments and you make it your top priority to repay at the earliest. However, refinancing for debt consolidation could involve certain costs and risks.

Refinancing to debt consolidation loans involves reviewing all your existing debts including the mortgage and then combine them into a brand new mortgage to enjoy the benefit of having just one single monthly payment rather than juggle with many payments. Many individuals opt for consolidating their debts to get more affordable loan repayments. However, this stratagem must necessarily make financial sense. You need to ensure that the new loan would cost less as compared to what you are presently paying on all existing debts.

Ways to Refinance to Your Debt Consolidation Loan

  • Identify Your Specific Requirements: You need to take into account your lifestyle and your unique borrowing needs. Consider the precise features you are looking for and expecting from the new lender. Find answers to important questions such as are you disciplined enough to manage your payments? Are you having a contingency buffer ready for covering your payments?
  • Talk Directly to Your Lender: Get in touch with your present lender and try to negotiate the current interest rate with your existing mortgage. This could ease some financial stress from your mortgage that may allow you to concentrate on servicing all the other debts you seem to be having. However, if you are looking for a different kind of a loan or feature, then you could opt for refinancing.
  • Do All the Refinancing Cost Calculations: Do not forget that you may have to pay a certain amount as fee for exiting your present mortgage. Remember that thanks to your brand new debt consolidation loan, certain upfront charges are involved including legal fees or application fees.
  • Do a Thorough Comparison of Refinance Mortgages: You need to seek expert guidance from an experienced mortgage broker for discussing the kind of specific debt consolidation loans you must opt for as they would best suit your financial scenario. You may be looking out for a mortgage that provides you with the capacity to make some additional repayments.

Some Key Reasons for Refinancing Mortgages

We understand that debt consolidation mortgages seem to be extremely popular as they typically provide relatively lower rates of interest as compared to credit cards and any other loans. In this context, you must realize that lower rates of interest would automatically imply lower monthly payments. This would culminate in substantial savings and the amount you end up saving could go toward paying off your debts faster, or saving, or investing. Essentially, you are rolling various types of debt into a single new loan with just one monthly payment. This could prove to be pretty helpful while managing household budgets. Moreover, keep in mind that your home mortgage loan interest is generally tax-deductible resulting in more savings.

It is of pivotal importance for the homeowners to have a perfect knowledge of their existing financial situation and the associated goals and aspirations and they should keep all this in mind while acquiring the new loan so that it is most appropriate for their current circumstances. Let us explore some core reasons for refinancing your mortgages.

To Enjoy Lower Interest Rates

As per, the main reason why several homeowners opt for refinancing their mortgage is simply to effectively lower their rate of interest. This is primarily the reason why most of you refinance any and every loan including a mortgage, credit card debt, and even student loans. As per the White House, in 2016, the average American homeowner could be saving as much as $3,000 every year simply by refinancing their mortgage. These are pretty impressive figures indeed. While evaluating if lower interest rates seem to justify mortgage refinancing, you must keep in mind the following considerations.

You need to remember that interest rates could go up in the future and looking at the current lower rate of interest, you cannot predict what would happen in the future. You need to analyze if it is wise to choose a mortgage depending solely on the present interest rate or is it a smarter move to consider predicting the future rates of interest.

Moreover, you must understand that the amount of savings would be a complex function of not just the interest rate but some other important factors. The new loan term would also, help in determining if the low-interest rate works in your present scenario. Suppose you are having 20 more years on your current mortgage and you are thinking of refinancing it back to a loan term of 30 years, you must understand that the extended loan term would lower your payment every month automatically even at the current rate of interest.

It is also, quite critical to consider the tax consequences in the event of mortgage refinancing, It is a fact that lowering your rate of interest would bring in substantial savings but probably not to an extent that you are thinking it would, once the smaller tax deductions are made on your lower interest payments.

To Build Equity Quickly

Suppose the homeowner’s financial scenario has changed for the better and he is capable of making higher monthly repayments as compared to usual either because of a boost in salary or some good fortune came his way, he may wish to shift out from his existing 30-year mortgage to preferably just 15 or even 20-year mortgage. This way, the homeowner could be building equity faster and saving an impressive amount associated with financing charges. This implies that the homeowner would be quickly building equity without even putting out a significant sum of money each month.

Conclusion: To Achieve Improved Credit Score

Achieving a boost in your overall credit score is certainly an important reason for mortgage refinancing. If the credit score of a homeowner has got enhanced as a result of prompt and timely mortgage payments, he may be successful in making the most of that enhanced credit by wisely refinancing into a lower-interest-rate loan. Always remember that for qualifying for the lowest mortgage rates, your focus must be to achieve an impressive FICO score that is 760 or even more.

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