Debt consolidation mortgage loans can help you lower your interest rates and monthly payments. With reduced interest rates, you can also pay off your debts earlier. However, if you reduce your equity, you could be subject to personal mortgage interest. You can also spend more on interest payments by delaying payments.
Saving with mortgage interest
Mortgage rates are much lower than credit card or unsecured loan rates. When you consolidate your debt with a refinanced mortgage or home equity loan, your payments are simply reduced with a lower interest rate. By paying the same monthly installments, you can pay off your debts quickly.
Your interest is tax deductible on a mortgage or home loan, even where your credit card interest is not. Student loan interest is also tax deductible and should not be consolidated for a higher rate.
Reduce your payments
Consolidating with a loan also allows you to reduce your payments by choosing longer terms. So if your income is falling or you have other financial commitments, extending your payments can give you some wiggle room in your budget.
Pay more fees and interest
The cost of a mortgage can be more than the interest you pay if you have a small amount of debt. To refinance a mortgage, the origination fees can add up to thousands. Other types of home equity loans can cost hundreds or nothing to open. You may also have to pay personal mortgage insurance premiums if you don’t retain 20% of your equity.
Late payments can also add up to interest payments, even at a lower interest rate. For example, a $10,000 loan amount costs $11,587.10 in interest on a 30-year loan at 6%. The same amount costs $5,896.71 for a 5-year loan at 20%, as is the case with most credit card payment plans.
Decision to pay off debt
Consolidating your high-yield loan can help pay off your debt through structured payments. You can also lower your interest rates, which makes repayment easier. However, be aware of the costs and look for low rates and fees. To get the most out of a consolidated loan, choose short terms to avoid high interest payments.