Why Mortgage Refinance

When people seek debt consolidation opinions as it pertains to incorporating consumer debt by refinancing a mortgage, they often have their own opinions as to what the "best" solution is. People who are approaching middle-age or just slightly beyond this life stage will have often repaid their mortgage rather aggressively, resulting in a reduced remaining amortization. This hard work deserves a pat on the back, no question.

The reality, however, is that even with a reduced amortization while carrying tremendous amounts of consumer debt does not make any sense whatsoever. Refinancing A Mortgage and taking advantage of the unused equity in your home to repay consumer debt makes the most sense and we highlight three of the most obvious reasons here.

One. Interest rates are higher on consumer debt than on a mortgage. By refinancing a mortgage, you can obtain a better rate on debt that you already owe. The difference is that the debt will not show on a statement from your credit card vendor, but on your annual mortgage statement instead. What would you do with the interest savings?

Two. Consumer debt typically comes with a higher monthly payment amount compared with mortgages. The reason is simple; mortgages can be amortized over longer periods (typically decades) where consumer debt is normally repaid over shorter periods (rarely even close to a decade). For cash flow reasons, it makes sense to refinance a mortgage. To illustrate, consider a $50,000 loan repaid over 72 months at a rate of 8.9% versus a mortgage of the same amount repaid over 25 years at 5.75%. The difference in cash flow is $586.24 if this debt were finances as a mortgage. What would you do with this much extra cash every month?

Three. Budgeting simplicity. If the typical North American carries balances on thirteen different credit cards, imagine the difference in having to make fourteen different payments (13 cards + 1 mortgage) every month versus a single payment after the refinance. What would do with the extra time?

Understandably, people do not intend on refinancing a mortgage so that they can carry it forever; the goal is ultimately to be mortgage-free. But carrying consumer debt for the sake of being mortgage-free is counter productive, especially when you consider the costs, payments, and time involved with carrying such debt. In terms of risks, they are the same; whether you have 80% equity in your home or 10% equity, if you stop paying that mortgage, your lender will foreclose. Therefore, it makes sense to use your equity to reduce costs and increase cash flow. With this in mind, refinancing a mortgage to repay consumer debt makes perfect sense.

Chris has more than 15 years of experience in the financial services industry, having helped thousands of clients fix their personal finances. He gives Debt Consolidation Opinions at Debt Consolidation Opinions.com