Consolidating debt into a home loan
In this example below, a client used a 15 year mortgage to pay off ,000 in credit cards and car loans.
By eliminating the credit card and car loan payments, the borrower was able to use a 15 year mortgage and rapidly build equity in their house.
Usually this would be a financial planner or advisor that regularly reviews your finances with you.
Accountability can also come from an annual mortgage checkup with a mortgage planner.
This not only simplifies the payments, but can also provide real debt relief by reducing those payments as well.
The exception would be your mortgage; if you're having trouble paying that, you need to work that out directly with your lender, perhaps through a loan modification.
However, you might be able to use a cash-out refinance to roll your other debts into your mortgage payment, as described below.
From an amortization schedule you can see how long it will take for the added debts to be paid off. You can’t control the interest rate – the market sets that, but you can control the term.
The Amortization schedule will vary based on the term of the loan and the interest rate. The real difference is with shorter loan terms – using a 20 year term pays off the ,000 addition in just 3.8 years and a 15 year mortgage pays off ,000 in only 2.5 years! If you are going to pay off debts and more importantly, stay out of debt, an accountability system is critical.Even is this borrower needed to finance a new car in a few years, the added equity in their house would exceed the new auto loan liability.