Many homeowners think about using their mortgage to pay off their other debts.
If you've already paid off your first mortgage, you can get another one.
Homeowners who still owe on their first mortgage can also consolidate their debts by taking out a second mortgage.
How smart is it to use a mortgage to pay off all your debts at once?
If the interest rate on your debts is lower than the interest rate on a mortgage, you should never use a mortgage to pay off your debts.
This means that you are paying more for your mortgage than you were for your debts. This is not a good way to spend money.
One small thing is different from this rule.
If your current debt has a low introductory rate that will end and leave you with a higher interest rate than the mortgage, you should think about getting a mortgage to pay off your debt.
In addition to the interest rate, there are other things you should think about if you want to use a mortgage to pay off your debt.
When your home is worth less than 20% of what you owe on it, you have to pay private mortgage insurance.
If these premiums plus the amount of your mortgage without consolidating your debts is the same as or less than the amount of your mortgage with consolidating your debts, then consolidating does not cost you more.
But if your monthly payment goes up because of private mortgage insurance, consolidation will cost you.
A lot of homeowners make the mistake of only thinking about their monthly mortgage payment and what they pay on their other debts if they don't consolidate vs. what their mortgage payment would be if they did consolidate.
Consider that when you combine debts with a mortgage, you pay them off over a longer period of time. This is why your monthly payment is lower.
Find out what your credit score is before you try to get a mortgage.
If you're having trouble with your credit, you probably don't have a perfect credit score.
Remember that the interest rate and terms of a mortgage will depend on how good your credit is.
If your credit score is below 600, it will be hard for you to get a loan with good terms. It won't be impossible, but it will be hard.
If you use a mortgage to pay off your debt, keep in mind that the debt is not gone. Instead, you are changing the way your debt is shown.
Use a mortgage calculator and a debt repayment calculator to figure out how much it will cost to consolidate your debts with a mortgage or pay them off all at once. Numbers never lie, but logic can be wrong.
There are calculators on Bankrate.com that can help you figure out both of these things. Use the calculator to try out different loan amounts and mortgage rates so you can get a good idea of how much it will cost to consolidate your debt.
