| The Benefits of Refinancing A Mortgage |
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| Written by Chris Blanchet |
| Wednesday, 01 July 2009 12:01 |
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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.
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. The first benefit is that consumer debt rates far exceed mortgage rates. Using the equity in a home to consolidate debt provides the lender will collateral and results in a lower rate. Refinancing a mortgage to pay out such consumer debt reduces the total cost of borrower for the term and since you owe this debt anyway, why not use the equity to get a lower rate? What can you do with the extra savings in interest costs? Number two is that the monthly payments on consumer debt are normally much higher than on mortgages. For this reason, refinance a mortgage to improve cash flow is a common occurrence. To illustrate, consider a loan of $50,000 at a rate of 8.9% with a term of 6 years compared to a mortgage of the same amount at a rate of 5.75% over a 25 year amortization. The gain in cash flow is $586.24 because the mortgage has a longer repayment period. Now, what would you do with your extra cash flow every month? Third is for the sake of simplification. Since the typical North American will have a balance on thirteen different credit cards, the typical North American is making thirteen different payments to credit card companies and one mortgage payment. By refinancing a mortgage, that would leave just one payment. Now what would you do with that extra time! Of course, nobody who looks at refinancing a mortgage plans on carrying that debt until the end of time. The goal is always to be mortgage-free, but when people carry consumer debt at the cost of paying off that mortgage, they are actually taking steps backward. All you have to do is consider the higher costs and payments associated with consumer debt. A common objective might be that securing consumer debt with your home puts your house at risk. Well, if you can't make your mortgage payment, the mortgage company will foreclose, regardless of whether you owe money to someone else. With that in mind, would it not make more sense to use your equity so that you increase cash flow and reduce the risk of default on the mortgage? DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Chris Blanchet has more than 16 years of financial services experience as a Financial Advisor. He gives Debt Consolidation Opinions at Debt Consolidation Opinions.com and maintains a Debt-Free Blog at How To Repay Debt.com |
| Last Updated on Friday, 03 July 2009 13:38 |