What is a debt consolidation mortgage and how could it help you?
A debt consolidation mortgage is more commonly referred to as a cash-out refinance. This is where you pull out some equity in your home to pay off debt.
For example: let’s say your current home is worth $200,000 and you owe $100,000. Also, you have $20,000 in credit cards and other loans you want to consolidate into a lower interest debt.
If you did a cash-out refinance, you could get a check for $20,000 at closing and you would now owe $120,000 on your mortgage. Essentially, the debt gets absorbed into your mortgage.
So, why would you do a debt consolidation mortgage? This type of cash-out refinance helps you turn unsecured, high-interest debt (credit cards, auto loans, etc) and convert it into secured, low-interest debt.
A debt consolidation mortgage is a piece of the puzzle towards becoming debt-free in the future. It’s not a full solution to a debt problem, it’s simply a tool.
The big thing you have to keep in mind with this strategy is that it doesn’t just make the debt dissapear. The debt will still be there. But, instead of the debt being held at high interest (usually 15-25% by AmEx or Visa, etc) it will be help in your mortgage (usually around 3-5%).
But, is it smart to take short term debt and convert it to long term debt? Here’s what I mean… If you have $10,000 worth of debt in credit cards, that debt will get paid off in about 7 years. If you take that $10,000 and wrap it into your mortgage, it will get paid off in 30 years if you don’t intervene.
So, in that case it’s not smart to do that. But, it is smart if you continue making similar payments on debt. But, instead of paying the credit card company, you pay extra into the mortgage.
Again, a debt consolidation mortgage does not make debt disappear. It simply restructures the way you’re paying back debt and can help you avoid the massive interest charged on credit cards and other high interest, risky debt.
Hey, my name is Kyle and I’m a Mortgage Advisor serving Tennessee, Florida, and Ohio. My goal is to help you get a crystal-clear home loan that helps you win the house you love. If you’re ready to create your home-buying plan, you can reach through any of the ways below:
CALL/TEXT: 937-249-0481
EMAIL: kyleseagraves@hey.com
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the first time I listened to this channel, he seemed to be very honest and therefore I started going over other videos. Here I think that the whole truth is being circumvented a bit… secured loan also means that if you can't pay the bank will take your house where as if you can't pay your credit card, they might garnish your pay check but at least you still have a roof over your head until you can pick yourself back up… I am not in the finance industry and he may be able to be more specific on this in his response as I did noticed that he does actually addresses comments. But just a thought to consider so that no one looses their house in a bad situation.
Thanks for watching! If you want to jump around to different points in the video, here are some quick timestamps:
0:06 What is a debt consolidation mortgage
0:44 Cash-out refinance and the debt consolidation mortgage
1:19 Taking debt and wrapping it into a mortgage
2:01 Why consolidate debt with a mortgage
3:40 Should you take short term debt and convert it into long term debt?
4:58 Limits of a cash out refinance
6:26 When a debt consolidation mortgage WONT work
7:45 Recap