Refinancing a Home Loan to Consolidate Debt
At some point homeowners may wish to consolidate their existing debts by refinancing their home loan. This is useful if you have several high interest debts that can be lowered by refinancing. A homeowner loan normally carries a lower interest rate than credit cards. However, if you are giving this debt relief option some consideration, there are a few issues you need to be aware of. These include your financial situation as it exists today, the length of your current loans, and the varying interest rates of those loans.
Here we will try to answer a couple of the most common questions facing a homeowner thinking about consolidation. Will I pay more long term by consolidating, and will refinancing improve my financial situation?
What is Debt Consolidation?
With a debt consolidation loan, your loan company will pay off your debts for you and you will then pay them one monthly amount in return. This continues until you have paid off the entirety of your debt, plus any interest accumulated.
Currently you may be making several different payments to different companies. All of them have different amounts owed, due dates, and interest rates, but all need to be paid every month. This is a confusing situation, and many people find it hard to keep up all these payments.
Will You Pay More Money?
Before you consolidate your loans, you need to decide if you would prefer either lower payments or a reduced overall payment. If you want to make an overall saving, then you should opt for a higher payment, shorter term loan. This is because, for example, you might take out a consolidation loan for, say, twenty five years which has much lower monthly payments and a lower interest rate. However, because you pay it back over the course of twenty five years, you could actually wind up repaying a lot more money than the initial amount owed. You really need to assess your preference and its importance to you; that is, lower monthly payments with a longer term and more expensive plan, or higher payments with a reduced overall length of time and its lower total repayment.
Does refinancing Improve Your Financial Situation?
If you are thinking about refinancing you should weigh whether it really will help your current situation. You may be better off short term, but worse off long term. In order to help you decide, you will need to calculate your income and expenditures using a mortgage calculator. Once you have done this, it will become clearer whether refinancing will meet your need.
Here we will try to answer a couple of the most common questions facing a homeowner thinking about consolidation. Will I pay more long term by consolidating, and will refinancing improve my financial situation?
What is Debt Consolidation?
With a debt consolidation loan, your loan company will pay off your debts for you and you will then pay them one monthly amount in return. This continues until you have paid off the entirety of your debt, plus any interest accumulated.
Currently you may be making several different payments to different companies. All of them have different amounts owed, due dates, and interest rates, but all need to be paid every month. This is a confusing situation, and many people find it hard to keep up all these payments.
Will You Pay More Money?
Before you consolidate your loans, you need to decide if you would prefer either lower payments or a reduced overall payment. If you want to make an overall saving, then you should opt for a higher payment, shorter term loan. This is because, for example, you might take out a consolidation loan for, say, twenty five years which has much lower monthly payments and a lower interest rate. However, because you pay it back over the course of twenty five years, you could actually wind up repaying a lot more money than the initial amount owed. You really need to assess your preference and its importance to you; that is, lower monthly payments with a longer term and more expensive plan, or higher payments with a reduced overall length of time and its lower total repayment.
Does refinancing Improve Your Financial Situation?
If you are thinking about refinancing you should weigh whether it really will help your current situation. You may be better off short term, but worse off long term. In order to help you decide, you will need to calculate your income and expenditures using a mortgage calculator. Once you have done this, it will become clearer whether refinancing will meet your need.