Mortgage Loan Refinance and Debt Consolidation: Are Debt Consolidation Mortgage Loans a Good Idea?

Mortgage loan refinance and debt consolidation are often performed together in order to tidy up family finances, reduce debt repayments and prevent creditor contact for non-payment. The provision of collateral will mean that consolidating credit card debt and unpaid medical bills can be performed more affordably than through an unsecured debt consolidation loan.

Mortgage Loan Refinance and Debt Consolidation

The loan enables the borrower to put unpaid credit card debt, medical bills, unsecured loans, repossession deficiencies, car loans and student debt under the same roof. Instead of making payments to lots of different creditors, the borrower will make a single repayment on the new loan. The borrowing term can be extended in order to aid affordability.

Unsecured vs. Secured Debt

Whilst debt consolidation mortgage loans do help, they usually involve turning unsecured into secured debt. Provided that repayments are maintained, this isn’t a problem. However, should the borrower default on the agreement, it could mean that the lender forecloses on the property.

Defined Term

Money owed on a charge card is a revolving debt because it doesn’t have a defined term. Mortgage loan refinance and debt consolidation provide the borrower with a specific date when that debt will be fully cleared. However, a common mistake made by those consolidating credit card debt is to leave the card active or fail to reduce the credit limit. This can lead to the creation of further unsecured debt.

Low Home Mortgage Payments

According to a Consumer Action credit card survey in July 2008, the median rate of interest on new purchases was 13.54%. Many card providers charge an APR that exceeds 20%. Debt consolidation mortgage loans are available on far more favorable terms, especially in a low interest climate.


Cumulative Interest

It is important to understand that extending the term of a loan will mean that more cumulative interest is paid over the loans duration. One of the more common mistakes made by borrowers is simply looking at the monthly repayment and not at the total interest that is due to be paid.

Alternatives to Mortgage Loan Refinance and Debt Consolidation

Rather than debt consolidation for bad credit, a debt relief program may be a more appropriate way to pay off debt. A debt settlement program could allow someone to become completely debt-free in less than 36 months. However, this will have negative ramifications for the individual’s credit score.

Mortgage loan refinance and debt consolidation not only simplifies personal finances, it reduces monthly repayments. However, it is important to understand the pitfalls associated with turning unsecured into secured debt. Creditors have far greater powers to recover their money in the event of default. A debt relief program, such as a Debt Management Plan, could provide a better alternative.