Managing high-interest debt from credit cards or loans can be challenging, but homeowners have an opportunity to leverage their home’s equity. Combine your outstanding debts through a debt consolidation mortgage, second mortgage, or a home equity loan or line of credit.

Understanding Debt Consolidation

Debt consolidation involves merging two or more loans into a single financing arrangement. A debt consolidation mortgage, a long-term loan, provides the necessary funds to settle multiple debts concurrently. By paying off existing debts, you streamline your financial obligations into one manageable loan. Essentially, a debt consolidation mortgage allows you to tap into your home’s equity by increasing your mortgage, and the surplus funds are used to settle high-interest debts.

This process resembles a mortgage refinance, enabling you to remortgage your home to address outstanding debts. You can pursue this with your current lender or explore options with a different financial institution. The new mortgage may have altered terms, such as a different interest rate and updated prepayment privileges.

Various types of debts can be consolidated through mortgage refinancing, including:

For individuals burdened by high-interest debt, a debt consolidation mortgage offers several advantages:

While debt consolidation can be beneficial, there are drawbacks to consider:

Most types of debt carry higher interest rates compared to optimal mortgage rates. Credit cards, for instance, often have rates exceeding 19.99%, while payday loans can reach annual interest rates of over 400%. Auto loans and personal lines of credit may also have interest rates surpassing 10%, depending on your credit score.