Starting The Mortgage Process
A debt consolidation with a mortgage refinance usually involves increasing your mortgage balance and using the proceeds from the cash received to pay off higher interest expenses such as credit cards.
Mortgage rates generally tend to be lower than consumer interest such as car loan rates or credit card rates. This is because mortgage rates are collateralized by your property.
Mortgage rates are often also tax deductible, unlike many other forms of consumer debt. This can represent additional savings for a borrower. You should check with your tax advisor about this.
Competing Offers
You can get competing offers from different mortgage lenders. These usually come in the form of a “Good Faith Estimate”.
This form is a written estimate of your fees and interest rate. It is only an estimate, and not a guarantee.
This will not necessarily give you the information you really need.
Debt Consolidation Requirements
After you are “approved” by a specific mortgage lender you will usually receive a “terms and conditions list”. This may be a list that your loan officer receives. They will then let you know what additional requirements are made of you to get the loan done.
This conditions list usually lists the exact debts that need to be paid off.
Evaluate this list carefully. It may include bad debts, collections, or co-signed debts. The lender or escrow agent will often write checks directly to the creditor, so you won’t have a chance to stop payments to them.
Different mortgage lenders have different debt payoff policies.
Some lenders will require some or all consumer debts to be paid off.
Some mortgage lenders allow a borrower to not pay off some bad debts, or cap the payment amounts on bad debts. In this way the entire amount of the bad debt is not paid off and the borrower gets to keep more of their money.
Make sure you are clear on what debts will and will not be paid off.
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