Use Caution When Shopping For Debt Relief Services
Avoid any debt relief organization whether its credit counseling, debt settlement, or any other service that:
- charges any fees before it settles your debts or enters you into a DMP plan
- pressures you to make “voluntary contributions,” which is really another name for fees
- touts a “new government program” to bail out personal credit card debt
- guarantees it can make your unsecured debt go away
- tells you to stop communicating with your creditors, but doesnt explain the serious consequences
- tells you it can stop all debt collection calls and lawsuits
- guarantees that your unsecured debts can be paid off for pennies on the dollar
- wont send you free information about the services it provides without requiring you to provide personal financial information, like your credit card account numbers, and balances
- tries to enroll you in a debt relief program without reviewing your financial situation with you
- offers to enroll you in a DMP without teaching you budgeting and money management skills
- demands that you make payments into a DMP before your creditors have accepted you into the program
Giving Up Your Endowment Policy
If you have an endowment mortgage, you could think about giving up your endowment policy or selling it off to an investor. This will provide you with a lump sum of money which you can use to help pay off the debt. However, you should think very carefully before doing this. You will need to find another way to pay off your mortgage loan and you will also need to find alternative life insurance cover. You will also need to find out whether there would be any penalties or other costs involved in bringing your endowment policy to an end. Get independent financial advice first.
If youre sure that you want to sell your endowment policy, the Association of Policy Market Makers can give you advice and help you sell your policy. You can contact the Association on 0845 011 9406, or look on their website at: www.apmm.org.
You will need to write to your lender and explain how you’re proposing to clear your debt.
For more information about how to write to your mortgage lender, see Dealing with your mortgage lender.
Rate And Term Refinances
It can be easy to fall into debt if youre having trouble making your monthly mortgage payments. A rate-and-term refinance can help you divert more money toward your debt without changing your principal mortgage balance. This can help you better manage your finances and pay down debt.
As the name suggests, a rate-and-term refinance changes your loan term and/or interest rate. Taking a longer term or a lower interest rate will lower the amount you pay each month. In some rare circumstances, you can even refinance your rate or term without a new appraisal.
How Rate-And-Term Refinances Work
For example, lets say that you have a $100,000 loan with a 4% interest rate and a 15-year term. Your monthly mortgage payment in this example is $739.69. Lets say you refinance your loan to a 30-year term. Your monthly payment becomes $477.42. This leaves you with an extra $262 to put toward your debt without adding PMI or more money to your loan balance. Keep in mind that increasing your term will cause you to pay more in interest over time.
A rate-and-term refinance is faster than taking a cash-out refinance. You may be able to take out an FHA Streamline refinance if you have an FHA loan, or a VA Streamline refinance if you have a VA loan. Streamline refinances have less paperwork and looser requirements. Dont qualify for a Streamline? Youll follow largely the same process as a cash-out refinance:
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Is Consolidating A Good Idea
There is no single answer to this question, since a lot depends on your circumstances – in particular how much debt you have, from how many sources and what level of interest you pay on it. For instance, if you have a lot of credit card debt, consolidation may well be a good idea, since credit cards are often the most expensive way to borrow money. The reality, however, is that the vast majority of people who use consolidation to pay off credit card debts go on to run up debt again – ending up with both the original consolidated debt and a new credit card debt.
In simple terms, consolidating debts is not the easy option it seems as there are lots of potential pitfalls that need to be considered as well as the short term benefits.
It is useful as a last resort if you are really struggling to meet a variety of monthly payments – however, once you have taken this step, you must be very disciplined about falling into debt again.
Why You Should Choose Quicken Loans
- Youll get a completely online application process with less paperwork, and you can track the status of your mortgage application.
- Our Home Loan Experts are available to answer your questions and help you understand the details so you get the right mortgage for you.
- After you close your loan, you can manage your mortgage online without any hidden fees.
- We service 99% of our mortgages, which means you can expect our great customer service to continue after you close.
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Consolidate Debt By Refinancing Your Mortgage
- Refinance with some of the lowest rates in decades, and get cash to pay off your high-interest debt. Dont wait these low rates wont last forever!
- Make one low monthly payment instead of several, and pay less overall every month. Unlike credit card interest, the interest on your mortgage is usually tax deductible.*
- Even if you have less-than-perfect credit, we can help. Paying off your higher-interest debts faster can improve your credit rating. Find out if you could lower your monthly payment or take cash out to access money for your other bills. Visit Rocket HomesSM to see your free credit report and score and track all your debts in one place.
- Interested in consolidating two mortgages? We can help you refinance both loans into one with a low rate that could significantly reduce your monthly mortgage payment.
Weve helped more than 2 million Americans lower their monthly payment by refinancing. Contact us today to see how we can help.
Adding What You Owe To Your Capital
You might be able to clear your mortgage payments debt by adding the money you owe to your capital and paying it back over the remaining period of the mortgage. This is known as capitalising the arrears. You could also ask to extend the term of the mortgage in order to keep your monthly payments down, although you will end up paying a much larger amount in total.
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Dont Be Fooled By Interest Rates
Remortgaging and rolling your credit card debt into your mortgage may seem like a no-brainer when it comes to the interest rate that you currently pay. With most credit card interest rates ranging between 16-27% APR and the average mortgage rate between 1-5% why wouldnt you want to move your debt onto a lower rate?
However it isnt quite that simple. Moving your debt onto your mortgage, even if its on a lower interest rate, could ultimately cost you more.
Whilst it may sound beneficial to have one simple payment going out each month, its always wise to look past those temptingly low interest rates and look at the long term implications of debt. You may end up paying more because you are paying your debt back over a much longer period of time.
Is Rolling Student Loans Into A Mortgage Right For You
Wanting to reduce your interest rate, lower the number of payments and qualify for tax incentives are all great reasons to consider rolling your student loan into a mortgage.
However, with the risks and extra costs that come with rolling student loans into a mortgage, its probably not worth it. Youre better off exploring federal repayment programs or student loan refinancing to make payments more manageable.
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Whats The Difference Between Refinancing Vs Renewing Your Mortgage
Renewing your mortgage means staying with your current lender for another term. Youll have an opportunity to renegotiate your interest rate and term, and you wont need to re-apply.
When you refinance, you are paying out your existing mortgage in order to negotiate a new mortgage loan agreement. This is usually because you want to access the equity in your home or lower other borrowing costs. There may be prepayment charges depending on when you choose to refinance.
How Refinancing A Mortgage Works
Refinancing a home loan involves paying off your current mortgage and replacing it with a new one.
The exact process of refinancing a mortgage depends heavily on state laws and regulations. However, generally, the process of refinancing will likely be similar to the experience you had with your first mortgage. To determine whether you qualify for refinancing, lenders will take into account various factors such as your credit scores, other debts, income, assets and the amount you want to borrow. They’ll also consider how much your home is worth to determine the loan-to-value ratio.
Ideally, you should have a regular income and at least 10 to 20 percent equity in your home to qualify for refinancing. Credit scores of 740 or more will also generally help your chances, although borrowers with scores of 620 and up can get mortgages insured by the Federal Housing Administration from an FHA-approved lender.
Refinancing also comes with some fees and other costs. You might pay 3 to 6 percent of the outstanding principal in fees. Depending on your lender, you might also owe a prepayment penalty for paying off your old mortgage early.
If you’re looking to get rid of , you can apply for “cash-out” refinancing, which allows you to tap into your home equity or the difference between what you owe on your mortgage and the home’s value. In this scenario, you’ll refinance for more than you currently owe and get the difference as a cash payment.
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Con: Yield Student Loan Repayment Protections
For those who have trouble paying off their student loan debt, there are many options out there to provide relief.
For instance, the federal government provides several income-driven repayment plans to help lower monthly payments as a percentage of borrowers incomes.
And when a hardship hits if you lose your job, for example you may be able to request a deferment of payments on your student loans. Even many private student loan companies offer assistance in such cases.
With your mortgage, however, you will still need to pay what is owed or risk losing the home.
How To Consolidate Your Debts In Canada
If you have a number of debts, you may wish to merge them all into one loan. This is called a debt consolidation loan. There may be a number of reasons why you would wish to do this. Below are the most common reasons:
- Simplify your finances by only having one monthly payment rather than many
- Use the consolidation loan to pay off higher interest debts so that you are left with one loan at a lower interest rate
To consolidate all of your debts, your first option would typically be to approach your bank or credit union and see if they can help you.
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First Time Homebuyer Checklist
Getting a mortgage while carrying significant other debt can put a serious strain on your finances. It might even keep you from qualifying for a loan. By consolidating your debt into your mortgage, you can move forward with the purchase while giving yourself the relief of spreading your other debt over 30 years. Just know that you still must come up with a down payment and understand that your debt potentially will be with you for much longer.
TL DR
Depending on the lender and the amount of debt, it may be possible to add the debt to a new home loan.
Home Equity Line Of Credit
A HELOC can be a great alternative to a debt consolidation and mortgage refinance. By comparison, HELOCs dont require you to completely rebuild your entire mortgage. Your HELOC acts as a second mortgage and lets you borrow against your home equitys line of credit without expensive closing fees usually associated with closing on a home.
If you were hoping to pay off $10,000 in credit card debt, and your home equity was valued at $120,000 on a $360,000 loan, a HELOC could be a good idea. Thats because the cost of the loan wouldnt jeopardize your PMI and youd be paying lower interest than you are currently.
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When Does Adding Someone To The Loan Make Sense
Adding a co-borrower can be beneficial as doing so could bring additional income and assets to the table. The combined income between the two of you may allow you to qualify for a larger loan amount, since you can afford higher monthly mortgage payments together.
Having a co-borrower may also help your ability to get approved for a mortgage in the first place by improving your debt-to-income ratio . Your DTI is all your monthly debt payments divided by your gross monthly income. Learn more about DTI here.
A high DTI is the #1 reason mortgage applications get rejected.1 By combining you and your co-borrowers debt and income, you may be able to reach a low enough DTI to meet lenders borrowing criteria. So if your co-borrower has a higher salary and/or less debt, that may make your blended DTI ratio much lower . Heres an example:
Can You Consolidate Credit Card Debt Into Your Mortgage
Quick answer: Absolutely you can. Its called a cash out refinance, and for some people its a great option. Heres what it boils down to: We have seen home loans typically have low monthly debt payments, and credit cards typically have high interest rates. A cash out refinance allows you to cash out equity in your home to pay off credit card debt. So, instead of paying a bunch of high-interest credit card debt, you would be paying one lower-interest home loan. This could free up a lot of money a month. On average, we have seen customers lowering their monthly debt payments by about $538* per month when they consolidate their high-interest debt.
Heres the tradeoff : Cashing out the equity in your home means youre essentially losing that equity. Youre also increasing your mortgage debt and most likely extending the length of your loan. All of these factors can vary depending on your situation, but in general, thats what you can expect.
So, yes, you can absolutely use your mortgage to consolidate your credit card debt. Consider the advantages. Consider the drawbacks. Talk to a professional. And long story short, its definitely on the table.
* Average monthly debt payment reduction figures based on Mr. Cooper refinances from July December 2017 in which a customer paid off at least one non-mortgage debt. Comparison between total minimum monthly payments before and after refinance. Individual results will vary.
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Pro: Score A Lower Interest Rate
The interest rate of a 15-year fixed mortgage averaged 3.32% in February 2020, according to Zillow. Meanwhile, federal Direct Subsidized and Unsubsidized student loans disbursed between 2018 and 2019 carried an interest rate of 5.05%.
In this case, consolidating student loans into a mortgage would mean savings in interest payments. However, it is important to note that those low mortgage rates are only available to those who are financially secure, have stellar credit and have demonstrated an ability to pay off debt consistently.
To guarantee savings, also consider:
- Opting for a fixed rate, as a variable-rate mortgage could be costlier down the road
- Account for any fees, such as closing costs, charged by your lender for the new mortgage
You Are Often Better Off Replacing High
We can show you how to use your home equity to consolidate your high-interest debt into a new or existing mortgage. It often makes sense to roll large amounts of high-interest debt into a mortgage. Why? Because we are benefiting from mortgage rates that continue to be among the lowest in decades, while credit card rates can be 10 times as high. Just compare mortgage rates with what youre paying on your credit cards and other debts!
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Can You Add Renovation Costs To Your Mortgage
Home renovations can add a lot of value to your home both in terms of your houses market value and in terms of your own enjoyment. Major home renovations however can be quite expensive, and if you do not have all of the money saved up, you will have to borrow it from somewhere. One option that appeals to many homeowners is adding the cost of renovations to your mortgage aka a home improvement mortgage.
This option makes sense particularly if you have built up equity in your home and if the renovations will increase your homes value. It is certainly a better option that putting the renovations on high-interest credit cards!
How To Safely Roll Credit Card Debt Into Your Mortgage
After weighing the pros and cons, if you feel that rolling your credit card debt into your mortgage is something that will work for you, heres what you need to know:
- Be realistic. If youre taking this step because of problems with credit and overspending, remember that this may help with some of the symptoms , but it wont address the central issue. Be sure to seek counseling or education services to help you make the big picture changes that will save you from ending back up in this position.
- Stick to your plan. Set a goal for paying off your mortgage just as you would your credit cards. If your budget allows, make an effort to pay more than your regular payment every month so you can get it paid off sooner.
- Budget for added costs. As the size of your loan increases you run the risk of being required to purchase mortgage insurance. This is typically required when the amount owed on your mortgage exceeds 80 percent of the value of your home. Mortgage insurance is an added monthly cost that would eat into whatever savings you earned by rolling your debt into your mortgage, so be sure to pay attention to the relationship between your homes value and the size of your new mortgage.
Before taking out a new loan, be sure to speak with a certified credit counselor first. The advice is free and can help you find the solution that works best for your goals.
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