Many people with high credit card debts choose to refinance their mortgage because they want to take advantage of the low-interest rates. The lower interest rates mean you can reduce your loan term and repay all your debts within a shorter timeframe. However, refinancing the mortgage also have other risks that you should consider.
One reason you should not refinance your mortgage to clear the debts you owe on your credit cards is that you can lose your home when you fail to pay. The credit card company will sue you and put a lien on your house, especially if you owe a considerable amount of debt. It has the authority to foreclose your home to cover the cost of your mortgage.
The bank will keep all the proceeds from the foreclosure sale of your house. The bank can seize your assets if the proceeds from the sale of your home in the foreclosure are not enough to cover your mortgage. You should look up your housing finance agency site to determine what will happen if the foreclosure proceeds are insufficient to cover your loan.
Mortgage refinancing can also not be acquitted by filing bankruptcy like credit card debts if you want to keep your home. You are responsible for fully committed to repaying the refinanced mortgage loan until it is completely paid off.
Mortgage refinancing also has expensive closing costs of about 3%- 6% of your home value. Some of the closing costs are origination fees and mortgage insurance. You can compare the various mortgage refinancing loans and their closing costs before making a decision.
Mortgage refinancing is considered a new mortgage, and it may have an impact on your credit score. It is getting harder to get approved for mortgage refinancing because of the strict rules set by the bank. Banks are now more rigorous and more selective due to the crash in the housing industry.
Applying for a mortgage refinancing loan is complicated and requires the filling of a lot of paperwork. Therefore careful consideration should be taken before deciding to pay off credit card debt by refinancing your mortgage.
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