Can I pay off my credit card debt with mortgage refinancing?
April 27, 2017
In a climate of rising home values and attractive interest rates, Golden Oak is often asked about the benefits of mortgage refinancing. Not only can you borrow against your equity, you can reduce consumer debt.
Let’s talk about the upside
Here’s the idea. You apply for a new mortgage, taking advantage of today’s lower rates, in order to reduce your monthly home payments. The extra cash you’ve freed up can be used to pay off the higher interest credit card debt.
What are the main benefits you’ll enjoy when it comes to home refinancing?
- Lower interest rates. You can consolidate your credit card payments under your mortgage or home equity loan. An interest rate of 6% makes a lot more sense than the sky high 20% interest rate you’re subjected to via credit cards. Not to mention late fee penalties.
- Tax-deductible benefits. You may itemize the interest on most mortgage payments on your tax return. You cannot do this with consumer debt.
- Gain financial flexibility. Mortgage payments are consistent—the terms won’t change on you like that associated with consumer debt. You’ll have a clearer picture of your monthly payments.
Now let’s address the downside.
- Let’s say you move or decide to buy a different home. Maybe it’s because of an unexpected job loss or personal matter. If you sell, particularly in a case where your home’s market value has dropped below the debt you’ve incurred, you run the risk of having no equity or get hit hard on your mortgage
- Let’s be honest. Extra money each month creates a temptation. If you’re prone to spending sprees, you could rack up more debt. The temptation is real.
Have a spending plan in place. Know how much you’re borrowing and the terms of the loan. Decide ahead of time how you’ll spend the extra cash. That’s what we recommend.
Also, shop around and compare rates. Golden Oak Lending is happy to answer all of your questions about refinancing your loan and how this could help with credit card debt. Call us today!