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Refinancing your mortgage to pay off debts?
What happens when your debt is so heavy that you need to do something drastic to reduce it? Most people who own houses tend to consider their homes as a bankable asset to be used in times of an emergency. You can refinance your home and pay off the debt, but this would mean taking on a bigger mortgage. Alternately, you could keep your current debts and pay non-deductible interest to the credit card banks.
While both options are available, there are quite a few issues that we need to consider when taking such a decision. And you need to ask yourself a few basic questions that will help you make the correct decision. One of the first things you should ask yourself is whether the choice of debt repayment will save you money and if yes, then which mode helps you save the most. Agreed this is a repayment thing and it is only natural that you will choose the loan option that will help you save rather than lose money.
So you think refinancing your mortgage will be the right way to repay your debts? You could use the cash-out to pay for your credit card debt and thereby reduce the monthly payments. This will of course increase the cash flow, but it will also mean that the new mortgage will cost more than the current loan terms.
But what should you do if your debt burden is so high that you are probably headed for bankruptcy? Then does the mortgage option still hold? Firstly, if your debt problem is so bad that you may have to file for bankruptcy, then you may not be able to get a new mortgage. So, you don’t have refinancing option. But if you still want to try out this method, it will be best to consult a bankruptcy attorney and know the options available to you before you do anything.
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