Consolidating your debt into a single payment can provide you with the ability to potentially pay it off faster. Only having to worry about one payment every month is also attractive for many people. One of the best ways to consolidate your debt into a single payment is to refinance your existing mortgage.
Function
With this process, you will take out a new mortgage loan from a mortgage lender. You can take the money from this loan and use it to pay off your existing mortgage. You then take the money that is left over and use it to pay off your credit accounts. At this point, you will have only one payment to make every month in the form of a mortgage payment to your new lender.
Interest Rate
One of the primary advantages of using a refinance to consolidate your bills is that you can get a low interest rate. Interest rates on mortgages are generally cheaper than what you could get from a home-equity loan or from a personal loan. The interest is much cheaper than what you could get from a credit card. By getting a lower interest rate, you can save a substantial amount of money over the life of your loan.
Taxes
Refinancing your mortgage and using the money to pay off your debts can also provide you with a tax advantage. If you itemize your tax deductions, you can deduct the amount of mortgage interest that you pay from your taxable income. This means that the interest you pay on your debts is actually tax deductible with this structure. When you pay a personal loan or a credit card interest, you do not receive any tax deduction.
Time Frame
When you refinance your existing mortgage, you will get a long period of time to repay your debts. Most mortgages are either 15, 30 or 40 years long. By getting longer to pay off your debts, you lower the monthly payment. At the same time, you have to deal with debts for much longer than you would with other loans.
Considerations
When shopping for a refinance, you need to take into consideration the amount of money that you have to pay in closing costs. Refinancing always involves some type of closing costs and if the costs are too high, it may be to your advantage to look elsewhere. For example, you might be able to get a home equity loan without paying the closing costs. The disadvantage to that scenario would be that you have to make a payment to both your home equity lender and your mortgage lender every month.
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