Mortgage Refinancing Should Be Part of Debt Management Strategy

By Richard Barrington
LoanPage.com Columnist

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Mortgage rates have now fallen half a percentage point since the middle of last year, and whenever rates fall it is natural for people with fixed rate mortgages to consider refinancing. If you find yourself in this situation, try approaching refinancing as part of a broader debt management strategy.

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While saving money with a lower mortgage rate is certainly a sound financial decision, consider whether or not it also makes sense to use the equity in your home to reduce the interest on other forms of debt.

Mortgage Rates Likely Offer the Best Terms

A true debt management strategy should go beyond simply consolidating debt. To make tangible financial improvement, you need to consider how debt consolidation might also ease your debt burden.

Replacing ordinary consumer debt with mortgage debt can have a tangible financial impact in two ways:
  • » Mortgage rates are generally lower than interest rates on unsecured debt. You can save money simply by lowering the interest component of your debt obligations.
  • » Mortgages can spread debt burdens over longer time periods. Rolling short-term purchases into long-term debt is not a good habit to get into, but as a one-time emergency strategy it might be a way to convert a seemingly insurmountable debt problem into manageable monthly payments.

Take Control of Your Debt Burden

These suggestions are predicated on the assumption that consolidating debt into a mortgage is part of a plan to take control of your debt burden. This means having a realistic budget for making the monthly payments--both now, and if your mortgage rates are subject to change in the future. Remember, mortgage debt is secured by your home, so if you can't realistically budget to make those payments, then don't include additional debt in your mortgage refinancing.

Sources
Federal Trade Commission
Freddie Mac

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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