Trade high-rate debt for mortgage-rate debt.
Consolidating cards into your mortgage can cut your total monthly outlay dramatically. It is also a real tradeoff, and whether it is right for you comes down to numbers I can run in about fifteen minutes.
If the answer is "do not do this," I will say so.
When it works well
One payment instead of five
Cards, personal loans, and medical bills collapse into a single mortgage payment. For a lot of households the relief is less about the total interest and more about the mental load.
Secured pricing beats unsecured
Debt backed by your home is generally priced well below credit cards and personal loans. That spread is the entire reason consolidation math can work.
Fixed and predictable
Unlike a variable line of credit, a cash-out refinance is usually a fixed rate with a set payment for the life of the loan. No repricing, no draw period ending.
Access larger amounts
When the number you need is big relative to your equity, refinancing the first mortgage often reaches further than a second-position product will.
Restructure the term while you're at it
You are rewriting the loan anyway, so the term is on the table. Sometimes the right move is cash out and a shorter term at the same time.
Drop mortgage insurance you outgrew
If you have built equity since you bought, the new loan may not require mortgage insurance at all. That saving alone sometimes justifies the transaction.
The honest tradeoffs
Every one of these is a reason someone should walk away from this transaction. You deserve to hear them before you apply, not after.
Your whole loan gets repriced
This is the big one. If your current rate is well below today's market, you give up that rate on the entire balance in order to access a smaller slice of equity. A second-position HELOC often costs far less in that situation.
Unsecured debt becomes secured
Credit card debt is unpleasant, but it is not attached to your house. After consolidation it is. That is a real change in risk, and it deserves to be said plainly rather than buried.
A longer term can cost more overall
Moving five-year debt onto a thirty-year mortgage lowers the monthly payment while potentially increasing what you pay in total. Lower payment and less money are not the same thing.
Closing costs are real
Refinancing a first mortgage costs more to execute than most second-position options. That cost has to be earned back, which is what the break-even calculation is for.
If your current mortgage rate is well below today's market, start with a HELOC instead. It leaves your first mortgage alone, and in that situation it usually costs far less.
How I run it
List the debts
Balances, rates, and minimum payments. It does not need to be exact to start, but the rates matter more than the balances.
I run it three ways
Cash-out refinance, HELOC in second position, and leaving it alone. You see all three side by side, including the break-even on each.
Decide with real numbers
If the math says do it, we do it. If it says wait, or use a line instead, that is what I will recommend, and I will show you why.
Common questions
How do I know if this is actually a good idea? +
By comparing it honestly against the alternatives, which is what I do before recommending anything. The three questions that decide it: how far below market is your current rate, how much do you need, and how long do you plan to keep the house. If your rate is well below market and the amount is modest, a HELOC usually wins. If your rate is near market and the amount is large, the cash-out refinance usually wins.
Will my monthly payment go down? +
Your total monthly outlay across all debts very often goes down, sometimes substantially, because high-rate payments are replaced by mortgage-rate payments. Your mortgage payment itself will typically go up, since the balance is larger. I will show you both numbers, because looking at only one of them is how people talk themselves into bad decisions.
What is the break-even? +
It is the point where your monthly savings have covered the closing costs. If it takes three years to break even and you are planning to sell in two, the deal does not work no matter how good the payment looks. This is the first calculation I run, not the last.
How much equity do I need to keep? +
Lenders limit how much of your home's value the new loan can represent, and that limit varies by loan type, property type, and occupancy. You will not be able to take all of your equity. I will tell you the real ceiling for your situation up front rather than after an appraisal.
Is the interest tax deductible? +
It depends on how the funds are used and on your personal tax situation, and the rules changed in recent years in ways that surprise people. I am not a tax advisor and will not pretend otherwise. Ask your CPA before you count on a deduction as part of the math.
What if you think I should not do it? +
Then I will tell you. I have talked people out of this transaction before, usually because the break-even did not work or because the spending pattern that created the debt had not changed. Rich Preston at (448) 202-7711 or rich@prestonlending.com.
Let's see where the break-even lands.
Send me your debts and your current rate. You will get all three options side by side, including leaving it alone.
A cash-out refinance replaces your existing mortgage with a new, larger loan secured by your home, and your home is at risk if you do not repay as agreed. Consolidating unsecured debt into debt secured by your home increases the risk to your property. Extending debt over a longer term may reduce your monthly payment while increasing the total interest paid over the life of the loan. Maximum loan-to-value limits, credit score minimums, closing costs, and available terms are set by individual lenders and vary by loan type, property type, and occupancy. Nothing on this page is tax advice; consult your tax advisor regarding the deductibility of mortgage interest. This page is for informational purposes and is not an offer or commitment to lend. All loans are subject to credit approval, income and asset verification, and property appraisal. Rich Preston, Branch Manager, NMLS 1735238. NEXA Lending, AZ Broker License 0944059, NMLS 1660690. Equal Housing Lender.