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Why Not Re-Finance or Get An Additional Mortgage To Re-Pay Debt?


It is not always a bad idea to refinance your home or obtain an additional mortgage to re-pay debt but this is something that should only be done with caution. There are a number of factors to consider
* By voluntarily giving up equity in your home through a re-finance (with money taken out) or obtaining an additional mortgage to pay bills, you are giving up an interest which is protected by law (your homestead exemption) and which your creditors could not force you to give up if you are unable to pay your other bills

* In the event you are unable to make the payments on a mortgage against your house, the mortgage company (even a second or third mortgage) can foreclose on the mortgage and cause you to lose your home. Your credit card companies cannot do that.

* Paying debt by refinancing your home or taking out an additional mortgage does not force a solution to the problem and many often get new credit card debt or debt over which they have no control such as medical bills and then have and even worse debt problem dealing with both high mortgage payment and this new unsecured debt.

* By re-financing while you have debt problems, you may be locking yourself into a mortgage with a higher than necessary interest rate. Most mortgage companies charge a higher interest rate for people who already have debt problems.

* Be very careful in a multiple mortgage or re-finance situation that there are not pre-payment penalties or high closing costs which make the refinance or additional mortgage a bad business deal.

* If you are making an interest only payment on your home loan, you are not building any equity based on your payments and your loan balance will not go down. You will only be building equity if the value of your real estate increases and when you make a new loan to pay more than interest, interest rates may be higher.

* If you currently have a fixed interest rate now, obtain a new flexible rate loan and interest rates increase, you could end up with a higher interest rate than you have now or than you can afford.

* Make sure before you choose to re-finance or obtain an additional mortgage to resolve debt problems that you have a good budget and plan to prevent future debt problems or you may create an even more difficult situation for yourself.

* Do not obtain re-financing or an additional mortgage out of panic or due to creditor pressure. Make sure that the re-financing or additional mortgage makes financial sense and will resolve your debt problems.

Consider a free initial consultation to discuss whether re-financing or obtaining an additional mortgage to re-pay debt makes sense.

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