There are many good reasons to consider consolidating debt into your mortgage.
Consolidating debt can bring relief to your monthly budget by reducing your monthly obligation by extending the term or repayment period.
Mortgage loans carry the lowest interest rates because they are secured by an asset, your home. As a result, they are much less risky to lenders.
By lowering your monthly payment and combining multiple payments into one, you are more likely to make every payment on time and in full. This will improve your credit score, giving you greater options with lenders in the future.
There are three ways to consider debt consolidation mortgages.
Refinancing requires you to take your mortgage and consolidate it with your other debts into one loan of up to 80% of your home’s value. If your mortgage is not currently up for renewal, it may require you to break your current mortgage contract and incur a penalty. The penalty can range from three months’ interest with a variable mortgage to a more significant interest rate differential penalty with a fixed mortgage.
Home Equity Line of Credit
A HELOC is a line of credit that is secured by your home and allows you to access up to 80% of your home’s value less your outstanding mortgage balance. All HELOCs are variable mortgages and come with a slightly higher interest rate than a typical variable mortgage rate.
HELOCs give you the flexibility to access as much or as little of the equity as you wish when you need it. In addition, you are not required to pay down a portion of the loan principle each month. Instead, you pay only the interest monthly on the amount you have utilized. This arrangement is known as interest-only payments.
Although there are legal fees associated with registering a HELOC, adding a HELOC on top of your first mortgage could help you consolidate debts while avoiding costly refinancing penalties until your first mortgage matures.
Second mortgage options often carry higher mortgage rates and fees compared to traditional mortgages. Although not offered by all lenders, they can allow you to access more than 80% of your home’s value. If you are having difficulty qualifying for a larger loan with your existing lender, then a second mortgage may be a good option. While second mortgages do come with higher mortgage interest rates, these rates are still usually lower than those of credit cards and personal lines of credit. They may help you restructure your debts into more affordable payments while saving or improving your credit ratings.