Debt Consolidation Refiance For Homeowners

The vast majority of homeowners have debt beyond that of their mortgage. This debt comes through a variety of things but is most often due to consumer loans, auto loans, and credit card debt. This type of debt is traditionally at higher interest rates and shorter terms than your mortgage. By paying off these debts from the proceeds of a Debt Consolidation Refiance many homeowners are able to save a substantial amount of money on their total monthly payments.

This is specifically arranged by accessing the equity in your home to obtain a 'Cash Out Loan' whereby the old debts are paid off and combined into a new, more affordable monthly payment based on a lower rate and a longer term.

There are 3 traditional types of Debt Consolidation Mortgages. The first is a Home Equity Loan. This is a type of loan that operates as a sort of open-ended credit line. The second type is a Second Mortgage. This is usually just like a regular 1st Mortgage except that it is placed in the '2nd' position on the title of your home. The third way is through a Cash Out Refiance. This is where you take out a new 1st mortgage at a higher loan amount than your old loan and use the difference as 'cash out' to pay off the other debts.

The primary reason your payments will drop is based on the change in terms. Specifically, most of the debt you are consolidating has higher interest rates and shorter terms than this new loan. When you spread this debt out over time and at a much lower rate your monthly payments drop significantly.

What actually happens in the process of a Debt Consolidation Refiance? The lender places a lien on the title of your home equal to the amount of your loan. You will make monthly payments based on the agreed-upon rate and terms until the loan is paid off. Then the lien will be removed from the title on your home. The new loan will reduce your monthly payments and, in some cases, this can prevent bankruptcy or even losing a home. It can also increase your savings because mortgages (unlike consumer loans and credit cards) is actually tax deductible.

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