Debt consolidation refinance: Simplify your finances

Consolidating debt into your mortgage

Credit cards charging 20%+ interest. Personal loans at 12%. Car payments, medical bills, student loans. When you add it all up, high-interest debt can feel suffocating.

If you have equity in your home, a debt consolidation refinance can help. You replace your current mortgage with a larger one, pay off your high-interest debts with the extra cash, and end up with a single, lower payment.

The math behind debt consolidation

Let's look at a real example:

Current situation:

• Mortgage: $300,000 at 7% = $1,996/month
• Credit cards: $30,000 at 22% = $750/month minimum
• Car loan: $20,000 at 9% = $415/month
• Total monthly payments: $3,161

After consolidation:

• New mortgage: $350,000 at 6.75% = $2,270/month
• Credit cards: Paid off
• Car loan: Paid off
• Total monthly payments: $2,270

Monthly savings: $891 Annual savings: $10,692

And because you're paying lower interest, more of each payment goes to principal rather than interest.

When consolidation makes sense

Debt consolidation refinancing works best when:

• You have significant high-interest debt (credit cards, personal loans)
• You have enough equity to access the cash you need
• The new mortgage rate is lower than your blended debt rate
• You're committed to not running up new debt

If you'd refinance even without the debt payoff, consolidation is almost always worth considering.

When it might not be the right choice

Be honest with yourself about spending habits. If you consolidate debt and then run up your credit cards again, you'll be in worse shape than before.

Also consider:

• If you're close to paying off your current mortgage, adding debt extends your payoff
• If you might sell soon, it may not be worth the closing costs
• If the interest savings are minimal, other debt strategies might work better

What debts can you consolidate?

Technically, you can use cash-out funds for anything. Common debts to consolidate include:

• Credit cards
• Personal loans
• Auto loans
• Medical bills
• Student loans (though weigh the loss of federal loan protections)
• Business debt (in some cases)
• Back taxes (consult a tax professional)

Requirements

Same as any cash-out refinance:

Equity: You'll need enough equity to borrow what you need while keeping 20% in the home.

Credit: Most programs require 620+. Your score might actually improve after consolidation as your credit utilization drops.

Income: You'll need to qualify for the new, larger mortgage payment (though it's often lower than your combined current payments).

Tax implications

Here's an important distinction: mortgage interest is only tax-deductible if the funds are used for home improvements. When you use cash-out to pay off credit cards, that portion of the interest isn't deductible.

However, the interest savings often far outweigh any tax benefit you might lose. Paying 6.5% non-deductible is still better than 22% on credit cards.

The consolidation process

1. Review your debts: List everything with balances, interest rates, and monthly payments
2. Get pre-qualified: We'll see how much equity you can access
3. Calculate the savings: Compare current total payments vs. new mortgage payment
4. Proceed with refinance: Standard cash-out refinance process
5. Pay off debts at closing: We can pay creditors directly from loan proceeds

The whole process typically takes 30-45 days.

Life after consolidation

Once you've consolidated, the key is maintaining the discipline that got you into your home in the first place:

• Cut up the credit cards you don't need
• Build an emergency fund so you don't need to use credit
• Continue making the same total payment you were making before to pay down your mortgage faster

Many of our clients find that consolidating actually helps them reset their financial habits.

See your consolidation options

Let's look at what you could save by consolidating your debt. Get a quote with your current debt information, or schedule a call to discuss your situation.