Refinancing with Higher Rates: When Debt Consolidation May Still Help

Debt consolidation isn't exactly a new idea. Most people already understand that replacing higher-interest debt with lower-cost debt can sometimes help.

But the numbers can still be surprising.

Let’s say someone owes $275,000 on their mortgage, with a principal and interest payment $1,700 a month. Now add $40,000 in credit card debt, with minimum payments $1,400 a month.

That’s $2,900 a month going toward the mortgage and credit cards.

In one example, using a new 30-year home equity loan would raise the mortgage payment to about $2,069 a month* — but it would replace the old mortgage payment and those credit card payments — saving you over $800 a month.

That could be meaningful monthly cash-flow relief.

But here’s the part to think about carefully: what caused the debt to build up in the first place? If the new loan helps stabilize the budget and keeps the debt from building again, it may be worth exploring. But if the spending problem is still there, using home equity may only create temporary relief.

Also remember, you're spreading that debt over a longer period of time, which can mean paying interest on it for many years.

And in Texas, home equity loans have an important limit: the total mortgage debt on your home cannot exceed 80% of the home’s value.

So the takeaway is this: debt consolidation can be a useful mortgage strategy, but it needs to solve the cash-flow problem without creating a bigger long-term problem.

And remember — it’s always okay to ask. We’re here to help you get home.

* Home equity loan payment assumes 6.875% note rate, 7.01% APR.