Consolidating Debts through Refinancing your Home Mortgage

As rates creep up, so do many homeowner’s home equity loan interest rates, credit card interest rates, and adjustable home loans. When you look at whether to refinance your home mortgage, make sure you examine all of your debt. Here’s how to determine whether you should refinance to consolidate all of your debt.

Add up all of your current debt. For example, if your credit card debt is $5,000, your home equity loan is $25,000 and you owe $200,000 on your loan. Your current debt is $230,000.

Add up all of your monthly interest payments. Examine your statements in detail and find out how much interest you pay each month. Your home loan may consist of interest, principle, taxes and insurance. You’ll need to determine what the interest amount currently is.

Determine how much your home is currently worth. You can contact a trusted real estate agent, or look for your home on for a rough estimate. Eventually for a refinance, you’ll need to pay for a home appraisal by a professional appraiser to get an exact amount. You can subtract the amount you owe on the home (include your home equity loan) from how much it is worth to get the amount of equity in the home.

Home worth – current home debt = Amount of equity

Your amount of equity is potentially the amount of debt from credit cards and other sources you can roll into your mortgage, which can potentially reduce your monthly payments.

Contact a mortgage professional to get a rate quote. Your mortgage professional can determine what interest rate and interest payment you qualify for if you were to refinance your home to consolidate your credit card debt and current home debt into one loan. Then compare the quoted interest rate payment to the interest rate payment you are currently paying.

Factor in refinance costs and how long you’ll stay in your home. If you plan on staying in your home 5 more years, divide the refinance costs by 5 and add to your current interest rate payment. Many mortgage professionals quote an APR rate, which includes those closing costs, but not all loan costs are included and they are divided over the entire loan period. Instead of using the APR, find out the exact costs and divide them out over a shorter time period yourself.

Compare refinance interest to the interest you currently pay. If you have significant savings, consider refinancing to consolidate your debt and reduce monthly payments.