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Pros & Cons of a debt consolidation mortgage

Taking out a single loan against the equity in your home will enable you to consolidate other debts such as a car loan or hire purchase agreement.

You could reduce your overall debt, simplify your budget, and take the pressure off your finances if you release some of the money you’ve already paid towards owning your home.

If you consolidate your debt, your monthly payment could be reduced, opening up ‘freed-up funds that can be used to reduce your debt and to improve your standard of living.

It is also known as a debt consolidation remortgage because a loan of this type refers to the same product, as opposed to the traditional mortgage and remortgage that are typically two separate products.

Pros of debt consolidation mortgage

Smaller monthly payments.

The combination of unsecured debts and a new mortgage can help you to manage fewer debts and obligations each month. If you make several high-interest payments each month to several lenders, it’s easy to get in over your head. 

Debt consolidation mortgage can simplify matters and save you a lot of money to consolidate your debt into a low-interest mortgage after you roll over your outstanding balances.

The End Date Is Fixed.

You may be paying for decades if your only credit card debt payment is the minimum due. There are usually clearly defined payment schedules for loans (and especially for mortgages), which explain how much you’ll be paying when it’s due, and when you’ll have it all paid off.

A Reduced Interests Rate.

Mortgages often have lower interest rates than unsecured loans, and much lower than credit cards, depending on the market and your credit score.

Deductions For Interest.

A mortgage rollover could help you save money in taxes if you have unsecured debt. You might be eligible to claim a mortgage interest deduction, which reduces your income based on how much interest you paid.


Cons.

Consolidating debt into a mortgage has a number of disadvantages.

The benefits of consolidating and refinancing your high-interest unsecured debts are numerous – you might save several hundred dollars a month if you consolidate and refinance!

It may increase your debt for a while.

You will have to pay off other debts over a longer timeframe if you roll them into your mortgage, which will delay your debt-free status. 

Your equity may be exhausted.

It isn’t unusual for some people to start considering their home as a resource they can access anytime, even for frivolous things like vacations. 

Some people even treat their homes like ATMs. Unfortunately, equity cannot always be used to its fullest. The more equity you use, the less equity you may have left if, say, you lose your job or have a medical emergency.

Debt may increase.

Despite consolidating their debt into a mortgage, many people use their credit cards. Now they’re not only paying more on their mortgage but also back in debt with their credit card companies. 


This may negatively affect their credit score. Certain credit cards can be closed (and your credit score is possibly lowered) after they are paid off. You may be considered to qualify if you pay off all your credit cards and close the accounts.

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