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Can You Refinance Your Mortgage to Pay Off Credit Card Debts ?

Most people look at the idea of refinancing their mortgage to pay off high interest rate credit card debts as  a no-brainer. The fact is that taking $ 10,000.of credit card debt at 15 %, 20% or 25% and turning it into a low interest mortgage of say, 5.00 % does have its benefits.

However, there are certain pitfalls to this.  If you are thinking of refinancing your mortgage to pay off your credit card debts, there are a few things you need to keep in mind.

First of all, credit card debt is unsecured debt, meaning that if for whatever reason you cannot pay off your credit card debts, your creditors can’t secure liens or repossess  your property. Obviously a mortgage is secured by your property. It is secured by your house which is most probably the most valuable asset that you own.

So if you are thinking of transferring your credit card debt, to a mortgage debt, make sure that you know that you will be able to afford the payments today and in the future.  This is vitally important, because if you can’t pay off your credit card debts, your credit score will suffer, however, at least you will not stand a chance of facing a foreclosure because your credit card debts were transferred to your mortgage.  Remember that your monthly mortgage payments will increase substantially if a credit card debt is large enough to warrant a refinancing of your mortgage in the first place.

Another thing to consider when refinancing your mortgage to pay off credit card debts, are the fees associated with the refinancing process.  Refinance costs can run into thousands of dollars depending on your loan agreement that you currently hold with your lender.

So for example, you have $10,000.00 in credit card debts and you feel you could pay them off in the next 2-3 years, the interest that you would pay on that would be substantially less than the cost of refinancing your mortgage. This is even if you are currently paying 15%-20% interest rates on your credit card debts. So it is extremely important to do the math before moving ahead with refinancing your mortgage.  Consider all the finance costs that could be involved, in many cases you will find that it just isn’t worth it.

The third part of the equation, is PMI,  or ‘ private mortgage insurance ‘. If refinancing your mortgage will take  the balance of your mortgage over 80% of the value of your home, chances are you are going to have to pay private mortgage insurance.  This is not necessarily a bad decision, however it is something that you will have to consider factoring in when deciding whether or not it makes sense to refinance your mortgage debt or not.

The final and most important thing to remember if you do decide to refinance your mortgage to pay off your credit card debt, is
DON’T RUN YOUR  CREDIT CARD DEBTS BACK UP AGAIN ! This is a mistake that is far too common in America.

People will refinance their mortgages to pay off their credit cards debts, just to charge up their credit cards again , and fall back into an even worse predicament than before. Not only do they have higher monthly mortgage payments to make, they now have the additional credit card payments to make.  This is a recipe for financial disaster that has already forced countless homeowners into foreclosure. Don’t become part of that statistic