Most Americans have several credit cards, and most people have thousands of dollars of credit card debt at high interest rates. Not surprisingly, when juggling mortgage payments, credit card payments, car payments and all the other bills of daily life, it can be easy to get overwhelmed and that’s why debt consolidation loans can offer some genuine financial freedom.

That’s why many people decide to refinance their mortgage at a lower interest rate, while taking equity out of their home to consolidate debt. If you decide to do this, your financial burden can become lighter as you are paying a much lower interest rate.

If you are considering a mortgage refinance to consolidate debt, keep reading to learn about some benefits and considerations that you should think about:

1. Lower Interest Payments

The problem with credit cards is that the debt is unsecured. That is, it is not backed by anything. This means that you pay a much higher interest rate, because it is a higher risk for the lender.

On the other hand, when you roll your debt into your mortgage, you will enjoy a much lower interest rate because the debt is secured by your home. As long as you are able to able to keep paying on your mortgage, you won’t have any problem, and you will pay a much lower monthly payment. Even some homeowners consolidate student loans into a mortgage because the interest rates are frequently lower.

2. Interest Can Be Tax Deducted

When you are paying interest on a mortgage, the US tax code states that you can write off that interest up to a certain amount. This means that many homeowners are able to reduce their tax burden considerably each year by writing off their mortgage interest. When you have all of that debt on your credit cards, you cannot write off the interest.

However when you use your mortgage as a debt consolidation loan, you may uncover new opportunities to save even more money by maximizing the US tax laws.

3. You Have Only One Payment

Almost everyone has forgotten to pay a bill on time. When you have several loan payments to make each month, you can easily forget to make a payment, and this can lead to late charges. In some cases, it could even hurt your credit score. When you roll your debt into your mortgage, you only have one, simple loan payment to worry about.

4. Stretch the Payments Out

When you refinance your mortgage to pay off debt, you will be able to pay a very interest rate and also pay off the loan over 10 or even 20 years. While you will pay more in interest to do this, you can minimize your monthly payments, and you are still paying a much lower interest rate than a credit card.

5. Choose Between Several Loan Options

If you want to consolidate your debt, you have several mortgage loan options. You can refinance your first mortgage and take out your equity. Or you can take out a second mortgage and get a home equity loan or a home equity line of credit (HELOC). Which you do will depend upon the situation you are in.

If you have a very low interest rate on your first mortgage, you may not want to do a refinance on your first mortgage at all. Most financial advisers recommend a first or second mortgage with a fixed interest rate when consolidating credit card debt. Now is a great time to reap the benefits of competitive lenders by obtaining a no cost refinance loan.

However, if you are going to be able to lower your interest rate, you may want to do the refi and pull out equity to pay off debt. You may want to take out a second mortgage to pay off the debt as well. The interest rate will not be as low as on a first mortgage, but you still will do far better than a credit card.

A HELOC loan allows you to take out a credit line on your home up to a certain amount. This is beneficial if you only need to take out money in small increments. But if you want to pay off credit cards, you may opt for the home equity loan, which gives you a lump sum of money at once.


Doing a mortgage refinance or taking out a second mortgage to consolidate debt can be a smart move, but there are some things to think about:

  • Many people get in trouble with debt and get in worse trouble by taking money out of their home, and then running up the credit cards again. This is a very bad idea, and is why some people who refinance their homes to consolidate debt end up losing their home. Doing debt consolidation with a mortgage takes financial discipline. If you are tempted to run up the credit cards again, you may want to get rid of them.
  • You now have debt that is secured by your home. So, if you fail to pay the loan, the bank will take your home. This is not something you want, so you really need to be sure that you can afford that monthly payment.
  • If the housing market in your area craters, as happened in the last recession in most parts of the country, you may owe more on your home than it is worth. This makes refinancing impossible and also makes the home very hard to sell.
  • Some people continue to use their second mortgage to pay off credit card debt, and the interest rate continues to rise over time. This can work if the home keeps rising in value, but if not, you will run out of equity and you will have a serious financial problem.

We think that doing a cash out refinance or a second mortgage to consolidate debt can be a good idea for people who have financial discipline. You will pay much less in interest and it is much easier to keep on top of payments when you only have one debt bill to pay each month.

However, for people who are too tempted by an empty credit line on credit cards, you could end up with your credit cards run up again, and more debt on your property. This can lead to serious financial problems, and it did for many Americans in the last crash. So refinance your mortgage to consolidate debt, but do so with caution.

*Please check with bank or lender on today’s rates on a mortgage that you qualify for with your credit score and credentials.  The information contained on is for informational purposes only .