Debt Consolidation

Debt consolidation for mortgage refinancing purposes typically is considered as a result of an individual’s monthly bills, quite often credit card balances becoming a serious problem. 

Borrowers consolidate debt and refinance their homes with the goal of reducing their total monthly expenditures.  There are costs related to debt consolidation and in most cases the bank or lender will charge a penalty, and there are additional legal fees involved.  The penalty and added legal fees are a result of the borrower essentially obtaining a new mortgage on the home.  These costs are in most cases added to the mortgage amount and do not represent upfront t out of pocket costs to the borrowers. However, these are still real costs absorbed by the mortgage and the borrower.

When borrowers refinance their mortgage, the penalty imposed by the bank is typically the greater of 3 months interest or the Interest Rate Differential (IRD).

Debt consolidation is a great strategy to reduce an individual’s monthly expenditures and to eliminate the high costs associated with credit card balances and the high interest rates charged on these balances.  However, consolidating this type of debt in a mortgage, and then building up large credit card balances again, often bring individuals to the same debt consolidation situation again in the future.  If a borrower plans on consolidating debt, it is recommended to eliminate and destroy all high cost credit cards.

Mortgage agents and brokers and financial planners in many cases help individuals facing debt issues.  Obtain professional financial help where available.

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April 27, 2017

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