Can You Roll Credit Card Debt into a Mortgage?
Nowadays, mortgage interest rates are much lower than interest rates for credit cards. Many people turn their credit card unsecured debt into mortgage debt. The purpose is to get lower interest rates, which are easy to pay. In simple words, the answer is "Yes" you can roll your unsecured debt into the mortgage. Let us explain how you can carry out this process. Read on!
How to turn debt into the mortgage?
For some people, it is hard to understand the concept of turning their credit card debts into mortgages. The reason is the plethora of many home loan products available on the market. In general, you have two options, such as refinancing your mortgage and taking out a home equity loan. You can choose one of these options to leverage the equity in your home.
What does refinancing a home mean? Well, in simple terms, a person buys out an old loan and replace it with a new one. Remember, when you do this, you may require agreeing to new terms. On the other hand, a home equity loan comes with its own loan terms. Usually, it is a second loan.
Both of these options require you to have a good mortgage history, credit score, and a better amount of equity. Keep in mind that you will be required to pay fees after you get approved for turning your credit debt into a mortgage. Once approved, you will get access to the funds that you agreed upon and thus, you can use them to pay off your unsecured debt.
Are there any downsides or risks?
It is important to differentiate between secured and unsecured debt. A credit card is considered unsecured when it has no attached collateral to the debt. For instance, when you default on your car loan, the lender can take the repossession of the car cover some of the debt you owe.
On the other hand, when you default on a credit card, the lender can’t repossess or take control of your assets, items, or purchases. If you face a difficult financial situation and you can’t make payments, it will significantly reduce your credit score. As a result, the debt collectors or issuing company will come to your house and may threaten you to take your household items.
So, that's the reason it is quite risky to turn your unsecured debt into a secured debt. In reality, you will make it harder for yourself to manage the secured loan. Similarly, if you want to use a mortgage refinance option to pay off your credit balances or debts, you may miss your mortgage payments. Consequently, you will lose your home.
Turning your credit card debt into a mortgage will convert the money into a secured debt. It means you will turn an asset into the debt. It all depends on your new repayment plan, and the time it will last. You can end up spending more money in total interests during the course of the loan.
|Thomas Moore is a proud American with a Bachelors Degree in Business Administration from the University of San Diego. He has been in the financial industry for many years holding numerous licenses in multiple states. He currently helps operate cashkingco.com and is our resident expert on all things finance and a great writer. Thomas is also an avid outdoor enthusiast that loves fly fishing streams in the Western United States. LinkedIn Profile