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Refinance your home and get cash out
This debt consolidation method involves getting a new mortgage that is larger than the outstanding balance on your current mortgage. The lender will use the proceeds from the new loan to pay off your existing mortgage and then will either issue you a check for the difference or pay off some of your other debts for you using the extra funds. Consolidating debt
using this method does not make sense in the following cases:
If you`ve been paying on your current mortgage for more than 10 years, assuming you've got a 30 year mortgage. The
reason is that in the early years of a mortgage, your monthly payments primarily go toward paying interest on the loan, but once you`ve been paying on yor mortgage for at least 10 years, you will have begun whittling down the amount of the loan pricipal, too. Therefore, each month that you make a loan payment, the closer you will be to paying off your mortgage and the more equity you will have in your home. However, if you refinance your mortgage once you`ve begun paying on the principal, you`ll lose all of your equity and you`ll have a brand new mortgage to start paying off.
If your new loan payments will be larger than your payments are now. This could be true depending on how much yo still owe on your current mortgage, the interest rate on the new mortgage, and the amount of extra money you want to borrow.
If you are trading a conventional mortgage for an interest-only mortgage. The problem with an interest-only mortgage is that
although your payments on the new loan during the interest-only period (5 or 10 years usually), will be relatively low, they
will skyrocket once the interest-only period ends and you`re required to start paying on the loan principal, too. If you can't
keep up with your mortgage payments once you have to begin paying interest and principal, you will be at risk of losing your home.
If you are trading a fixed-rate mortgage for one with a variable rate. Depending on how much the rate increases on your new
loan, your mortgage payments could end up being higher than the payments were on your old mortgage, and eventually the payments could become unaffordable.
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