Refinancing Your Mortgage To Pay Off Debts

With growing consumer debts, should consumers refinance their mortgages to pay off debts?

Refinancing Your Mortgage To Pay Off Debts
April 18, 2016

Between the increased amount of debt that weighs upon many consumers and the declining interest rates on mortgages, many people have considered refinancing their homes to pay off some of that debt.

By refinancing, they replace their old mortgage with a new one that has a lower interest rate. This helps to reduce their monthly payments, allowing them to pay more towards other types of debt. A refinance can also be considered as a cash-out option, where consumers borrow against their home’s equity.

There are several advantages of doing this. Interest rates on today’s mortgages are much lower than those on credit cards, allowing consumers to pay off their high-interest debts and reduce their overall combined debt interest rate by several points. Another advantage is that the interest paid on mortgages can be deducted from personal tax returns, while the interest on other types of debt cannot.

There are, however, downsides to refinancing. If a consumer pays off credit cards using the money received from a cash-out mortgage, they may immediately begin using those credit cards to make new purchases, building up their debt once again. This will quickly leave them with the same amount of debt, but with no equity in their property.

Homeowners are also cautioned not to refinance their homes for large sums of money much greater than what they need. Doing so will put them in more debt overall, and that will be debt that will take much longer to pay off.

If you are interested in a personal loan, visit our curated list of top lenders.

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Elaine | 04.18.16 @ 17:30
This is a hard one but I feel I would rather have a house actually paid off. I have watched too many get in their retirement age and worry about if they will have a place to live bc they can't afford their house payment any longer.
Erin | 04.18.16 @ 17:31
I had never considered paying off debt by refinancing a mortgage. I think I'll stick with other means of doing so if needed, but this will be an option I can keep in mind if I have no other choices.
Carla | 04.18.16 @ 17:31
I compared interest rates and how much we actually owe on our home and decided against efinacing right now but it is nice to have the option if needed.
STOKES | 04.18.16 @ 17:32
I would never risk my home to pay off other debts.
Meredith L | 04.18.16 @ 17:33
I know this is a great way to pay off debt as well as trying to find a better mortgage rate. Problem is, I need to get my credit score back up to qualify...AND not get into credit debt again. #LearningTheHardWay
Kamie | 04.20.16 @ 16:42
I think I rather have my house completely paid for and done with it, over struggling on paying amounts that I will not even make at a retiring age. It will already be hard enough being too old to work, but forced to work.
$commenter.renderDisplayableName() | 11.29.20 @ 19:32