A mortgage for debt-consolidation makes a lot of sense when the home has risen in value since the time of purchase and the individual is carrying unsecured debt obligations at interest rates higher than the interest rate available for the mortgage. Debt consolidation mortgages, also known as debt management mortgages, can really improve monthly cash flow.
A mortgage for debt consolidation in its simplest form is negotiated as a new first mortgage at the time of renewal or a mid-term refinance. It can also be done as a home equity loan, equity-take-out mortgage or even a second mortgage. Either way, the goal is to improve monthly cash flow by consolidating debts into one new, lower monthly payment.
The savings can be considerable, and your mortgage broker can itemize everything out for you to make comparisons and track the savings. By consolidating debt, you can save on interest costs, you will have just one payment to make, and you may find it easier to pay off your debt more quickly. Debt consolidation can have the added benefit of improving your credit score, if it’s removing volumes of revolving debt from your credit bureau and/or lowering the balances as compared to the limits. A mortgage broker that is experienced with debt consolidation mortgages can explain this potential to you in more detail.
While removing equity from your home can be a good idea, you should do so with caution and fully understand the benefits and possible risks. The best thing you can do is to consult a licensed mortgage broker and certified financial planner to discuss opportunities to make your home’s equity work for you.