Getting a consolidation remortgage or refinance will help you with your cash flow (may even help you a lot, depending on how much unsecured debt you carry and the interest rate you are being charged). However, a remortgage consolidation does not create miracles and it’s not all positives.

Below you will find the four reasons it makes sense to do a remortgage consolidation and the four problems that can arise out of doing one. Below you’ll find the 3 pros and 2 cons of remortgage consolidation.

The 3 pros of remortgage consolidation:

1. Since they are secured by your home, the interest rates for mortgages (and often for home equity loans) are lower than they are for credit cards, often much lower.

2. You may be able to deduct part of the payment (the interest) on your income taxes. The interest on credit cards, cars, and other unsecured loans cannot be used as a deduction.

3. You make only one payment not many. What this means is that you’ll have an easier time staying on top of your finances. It also means that the minimum monthly payments are going to be smaller. There are two reasons for this: a. your interest rate is lower (of course).

a. Your interest rate is lower (of course).

b. You are making one payment not many. The more unsecured debts you’re consolidating in your remortgage, the bigger the difference between the minimum payments on all those loans and your current mortgage vs. your consolidation remortgage.

The 2 cons of remortgage consolidation:

1. The most serious one is you can lose your home. Remember, you are using your home as collateral. If you fail to make the minimum payments for several months, your lender can, and will, start foreclosure proceedings. It’s true, you might be able to sell your home before that happens, but you’ll be under pressure and you’ll sell for less than it’s worth (thereby losing equity, if you had any).

2. It’s easy to accumulate more debt. Since the minimum payments are going to be smaller, you’ll have more cash than what you were used to and might start feeling giddy, so giddy that you start buying on credit again. It’s happened before to many. Do change your habits.

There is another thing to consider, which is a pro or a con. It depends on 4 factors: amount of unsecured loan, unsecured loan interest, and the monthly payments you make on the unsecured loan and on the remortgage.

Con: If the unsecured loan amount is low and the interest rate is not too high, you’ll be able to pay off the unsecured loan faster and spend less money doing so even if you make only minimum payments.

Pro: On the other hand, if your unsecured loan amount is high and/or the interest rate is high, it will take you less time and less money to pay it off by doing a consolidation remortgage.

Two examples:

It takes 30 months (2 and a half years) to pay off a $2,500 credit card with an interest rate of 11% if you make minimum payments (interest and 1% of balance) plus $50.

It takes 392 (a bit over 32 and a half years) months to pay off a credit card with an interest rate of 23%, if the loan amount is $15,000 and you make only minimum payments (interest and 1% of balance).

So, a remortgage consolidation makes sense if you have large unsecured debt at high interest rate and you can pay at least the minimum monthly payments and does improve your cash flow but it has a price. Don’t do a remortgage consolidation lightly.

Author Bio: There are many variables with a mortgage, some of which can cost you thousands of dollars. Avoid costly mistakes with your consolidation remortgage and don’t give your remortgage lender money you don’t have to.

Category: Finances
Keywords: remortgage,consolidation remortgage, remortgages,bad credit remortgage,adverse credit remortgage