Debt Consolidation Refinance

What is a Debt Consolidation Refinance?

A Debt Consolidation Refinance is a type of cash-out refinance where you access equity in your home and use it to payoff existing debt.  If there is currently an existing mortgage on the property, this loan is paid off & the new loan amount is calculated by adding the payoff amount of the existing loan + the amount of debt being paid off + closing costs.  Debt Consolidation refinances can have a dramatic impact in reducing your global debt payments as the interest rate on the new mortgage is in most cases substantially less than the interest rate in the debt being paid off and the term of the mortgage is often longer than that of the debt being paid off.  An added benefit is that mortgage interest is tax deductible which leads to even further savings by increasing your tax refund.

What Debt is Commonly Paid off in a Debt Consolidation Refinance?

Any debt can be paid off with a Debt Consolidation Refinance.  But below is a list of some common examples:

  • Credit Cards
    • Paying off high interest credit card debt is probably the most common form of a debt-consolidation refinance. Exchanging 15-20% interest rate credit card debt for 3-4% mortgage interest rates can result in dramatic savings.

    • Paying off credit card debt also has the added benefit of usually increasing your credit score.  This will make the cost of financing for you in the future cheaper as long as you can maintain the low credit card balances.

  • Car Loans

  • Federal Taxes

  • Student Loans

  • Unsecured or Private loans

  • Mortgages on other real estate owned (this is common when the other property carries a high interest rate).

  • Subordinate financing on the subject property that was not taken out simultaneously with an existing first mortgage.

Do I Have to Bring any Money to Closing in a Debt Consolidation Refinance?

No, typically closing costs are rolled into the new mortgage when you refinance your existing mortgage.

What is a no Closing Cost Debt Consolidation Refinance?

A no closing cost debt consolidation refinance is when the lender gives a credit at closing to offset any closing costIn exchange for taking a slightly higher interest rate, the lender will pay your closing costs for you. Typically a .25% increase in interest rate will equate to a credit equal to 1% of the loan balance.  For Example:

  • Your debt consolidation refinance on a Florida property has a new loan amount of $200,000.
  • The interest rate offered is 3.5%

  • Your closing costs are $4,000

  • Your lender offers to pay $2,000 of your closing costs in exchange for you agreeing to accept an interest rate of 3.75%

  • Your lender offers to pay $4,000 of your closing costs in exchange for your agreeing to accept an interest rate of 4%.

When you negotiate a higher interest rate in exchange for a lender credit to your closing costs this is referred to as “Buying up the interest rate”.  If you plan on holding the loan for a short period of time, this can be an excellent way to ensure that the benefits of the refinance are not eroded away by the transaction costs.

Other Types Of Refinances

Rate/Term - No Cash Out Refinance
Cash Out Refinance
No Closing Cost Refinance

Additional Refinance Links

Refinance Basics
How Much Equity Do I Need To Refinance?
What Are The Costs To Refinance?
Should I Refinance My Home?  
Rate/Term - No Cash Out Refinance
Debt Consolidation Refinance
Cash Out Refinance
Overview Of The Refinance Process
Important Tips For A Successful Refinance Process  
Refinance Documentation Checklist
FHA Streamline Refinance
VA IRRRL & VA Cash Out Refiances
HARP Refinance
Refinance Calculator
Contact A Refinance Mortgage Expert