Is it a Good Idea to Consolidate Debt in a Mortgage Refinance?

If you need to sell your home in a weak market, a consolidation refinance may have wiped out your equity.

Improved Cash Flow

Consolidating debt into a mortgage refinance can provide financial relief for a one-income family through improved monthly cash flow or by satisfying a wage garnishment, and it might possibly repair a poor credit score. Additionally, mortgage rates are typically lower than rates on other types of loans.

More Costly

MSNBC's article, "Refinancing? Weigh risks of debt consolidation" quotes Susan Reynolds, author of "One Income Household." "You will pay significantly more in interest over the life of the homeowner's loan than you would if you chipped away at your credit-card debt over a period of three to five years," she says. Additionally, borrowers often return to their bad spending habits after a consolidation refinance.

Bottom Line

Before rolling debt into a new home loan, Todd Huettner, president of Huettner Capital, advises homeowners to ask themselves three questions: Why do I have this debt? What are my costs to refinance? Is there a better way to eliminate this debt? Seriously consider all other options first.

References

• MSNBC.com Personal Finanace: Refinancing? Weigh Risks of Debt Consolidation
• Investopedia: Mortgages: The ABCs of Refinancing

Resources

• Lending Tree: Ask an Expert: Using a Mortgage to Consolidate Debt