Many people with high credit card debts choose to refinance their mortgage because they want to take advantage of the low interest rates. The lower interest rates means you can reduce your loan term and repay all your debts within a shorter timeframe. However, refinancing the mortgage also have other risks that you should consider.
One of the reasons why you should not refinance your mortgage for clear the debts you owe on your credit cards is that you can possibly lose your home when you fail to pay. The credit card company will sue you and put a lien on your house especially if you owe a huge amount of debt. It has the authority to foreclose your house to cover the cost of your mortgage.
The bank will keep all the proceeds from the foreclosure sale of your house. The bank can seize your assets in case the proceeds from the sale of your home in the foreclosure is not enough to cover your mortgage. You should look up your state housing finance agency site to find out what will happen if the foreclosure proceeds is insufficient to cover your loan.
Mortgage refinancing also cannot be acquitted through filling of bankruptcy like credit card debts in case you want to keep your home. You are responsible for fully committed in repaying the refinanced mortgage loan until it is completely paid off.
Mortgage refinancing also have expensive closing costs that is about 3%- 6% of your home value. Some of the closing costs are origination fees, and mortgage insurance. You can do some comparison on the various mortgage refinancing loans and their closing costs prior to making a decision.
Mortgage refinancing is considered as taking a new mortgage so you will experience a drop in your credit score. You are making the mortgage larger so it will definitely have a huge impact on your credit score although the effect is just temporarily. The increased mortgage will appear on your credit score and make it harder for you to obtain other loans.
It is getting harder to get approved for mortgage refinancing because of the strict rules set by the bank. Banks are now stricter and more selective due to the crash in the housing industry. It is hard to qualify for it if you have an average credit score. The ideal credit score is 720 and above in order to get the lowest rate that the bank advertise.
The process of applying for the mortgage refinancing loan is complicated and requires the filling of a lot of paperwork. Some of the different types of paperwork that you are to submit include pay stubs, loan statements, and income tax returns. The loan officer also have to go to your house to survey it and give his appraisal on the value. It will take at least a few months to get approved for mortgage refinancing.