Debt Consolidation Refinance
There are times in life when issues associated with debt tend to surround you regardless of how careful you’ve been with your money. And in times like these, the best and the only thing that you can do is to seek help through debt consolidation. Refinancing helps you lower the amount of payments that you have to make on a monthly basis (this could be limited to just one payment per month), reducing your interest rates and collections, avoid bankruptcy, and put aside the late fees.
Defining Debt Consolidation Refinance
Basically, debt consolidation refinancing refers to replacing your existing mortgage loan with another new loan that’s greater than the existing outstanding balance. The additional cash allows you to combine and pay off all of your bills. This new loan obtained against the same assets is referred to as the cash-out refinance mortgage.
An Example of Debt Consolidation Refinancing
In a scenario where you have to pay $60,000 on a home that’s worth $150,000 and you are looking forward to refinancing in order to obtain low rates of interest on your mortgage, you will also require a little extra cash. This would be somewhere around $50,000, consolidating your payday loans and credit card bills. And since lenders typically refrain from providing a loan that’s not more than eight percent of the home’s estimated value, the highest amount that you receive as cash-out refinance mortgage is $120,000. However, if your monetary needs exceed eighty percent of the estimated value of your home, you’ll have to buy private loan insurance, something that compensates the lenders in cases where you’re unable to pay off the loan.
When Should You Consolidate Your Credit Card Debts?
There are various situations that can lead to the consolidation of your credit card debts. Though, when the balances on your high-interest rate are higher and you decide upon consolidating your credit card debts, then there are a couple of things that you need to keep in mind before proceeding further. Firstly, you should do your research on the offers associated with balance transfer. Study the terms of any lowered interest rates as these tend to be lower at the introductory phase but start inflating after a specific amount of time. Also, be sure to keep your credit cards at bay whenever you’ve decided to consolidate your debt. That’s because using these cards again will reduce your chances of paying off the debt in a short span of time along with increasing the existing amount of debts.
Is Debt Consolidation Refinance Right for You?
Following are some of the factors that you need to consider prior to deciding on consolidating your credit card debts that will help you make the right decision.
- The amount of money you need to acquire in opposition to the estimated value of your home. Will you be able to pay mortgage insurance following the refinance? Ø Can you earn enough money each month to pay off the post refinance fee?
- Are the existing mortgage rates lower than the rates of your credit card?
- Will you be living in the same home for the subsequent five to fifteen years?
- Will the refinancing costs be overcome through interest savings?
If you’ve answered all of the above questions in the affirmative, then debt consolidation refinance is exactly what you need. It is crucial for you to seek advice from your finance representative regarding all the options that are available to you to ascertain the credibility of your decision. A lot of people consolidate debts or refinance in order to pay off their loan payments as it seems rather affordable for the time being. Although, the costs associated with your second mortgage should be much lower than the payments you’ve been making up until now (this includes refinance costs, interests and fees) in order for it to be an effectual debt management plan.