New Home Loan is the Perfect Debt Consolidation Opportunity

By Kelly Richardson Columnist

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Most potential homeowners who apply for a mortgage typically apply for the minimum amount needed to purchase the home they have their eye on. But consider this. Instead of refinancing, why not apply for a home loan that is slightly higher and use that extra money for debt consolidation? Here's more.

Much has been made in the past decade about refinancing your home mortgage, pulling money out of equity, and using that money to pay for credit card debt. It sounds great for you, as you'll eliminate your debts and pay just one monthly mortgage payment as opposed to writing checks to several credit companies. It's also great for the mortgage lenders, as they can charge a variety of application and closing costs in addition to selling a higher home loan. But therein lies the problem.

Debt Consolidation without Refinancing

  • » Fees, Fees, Fees. When you enter into a mortgage refinancing agreement, you'll have to pay a litany of fees associated with the process. These include origination fees and closing costs that can add up to hundreds or thousands of dollars. By using your initial mortgage, you can avoid these extra charges.
  • » Credit Examination. To complete the refinancing process, the mortgage lender must examine your credit rating again. But by combining a first home loan with the added expenses for debt consolidation, you'll only have your credit checked one time.
  • » Current Interest Rates. You complete a new home loan application and get approved for a very competitive annual percentage rate. If you refinance, that rate may have changed significantly in the time between, lowering your savings.
  • » Monthly Payments. Most homeowners don't realize that applying for a new home loan and including debt consolidation money only raises your monthly payments by a couple of hundred dollars.
  • » Credit Improvement. If you have a history of credit issues, receiving a new home loan for a higher amount will actually begin the process of rebuilding that credit.
For those of you who already own a home, refinancing is still a powerful tool for debt consolidation. But if you haven't yet made that leap, consider asking for a higher initial mortgage amount and save yourself the hassles and penalties of going through the refinancing process.

About the Author
Kelly Richardson covers the real estate scene in major cities across the country. His articles appear in educational journals, periodicals, and e-zines.

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