Use our Debt Consolidation Refinance Calculator to determine how much you can save by paying off high cost debt when you refinance your mortgage. Because mortgage rates are usually lower than the rates for other types of loans such as credit cards, you may be able to save money by consolidating all or part of your debt when you refinance. A debt consolidation refinance can be complicated because it involves several loans and different interest rates. Use our calculator to simplify your analysis and understand if this refinance option is right for you.
With a debt consolidation refinance, you increase your mortgage balance and use the equity in your home to pay off more expensive loans. You may also be able to reduce, or consolidate, the number of loans you have into one mortgage. For example, you may decide to payoff and close multiple credit card accounts with the proceeds from your refinance. When used correctly, a debt consolidation refinance can reduce your total monthly debt expense and lower your average interest rate. Our calculate uses the following key inputs to enable you to evaluate this refinance option:
Existing Debt Balance. This is the total amount of debt you want to consolidate. This can include any type of debt such as credit cards as well as car, personal and student loans. Input the total debt you want to pay off or pay down across all accounts. For example, if you want to pay off $5,000 in credit card debt and a $3,000 personal loan, input $8,000.
Monthly Debt Payment. This is the total monthly debt payments for the loans you want to payoff. For example if you want to consolidate a credit card with a $450 monthly bill and a car loan with a $300 monthly payment, input $750.
Current Monthly Mortgage Payment. Input your current mortgage payment. You may be able to reduce your monthly payment when you refinance.
Outstanding Mortgage Balance. This is your current principal mortgage balance. Please input your outstanding loan balance and not your original mortgage amount. You can find your current loan balance on your most recent mortgage statement or by contacting your lender. Please note that you are required to pay off your mortgage completely when you do a debt consolidation refinance. If your loan balance is too high you may not be able to consolidate as much debt as you want.
New Mortgage. This the mortgage amount for your debt consolidation refinance. Your new mortgage must be greater than or equal to your existing mortgage balance plus the total debt you want to payoff in addition to any closing costs you want to finance.
Property Value. Input your estimated property value to understand if your home is worth enough to pay off both your current mortgage as well as other loans when you refinance, as lenders only permit you to borrow so much relative to the value of your home. In other words, you may want to consolidate debt but you have to have enough equity in your property to qualify for the refinance.
Our calculator enables you to understand the following information about a debt consolidation refinance:
Combined Monthly Mortgage and Debt Payment. This is the total monthly expense for the debt you want to consolidate and your mortgage. In other words, this is your monthly debt expense before you refinance. For example, if your current monthly debt expense is $750 and your mortgage payment is $2,750 then your combined mortgage and debt payment is $3,500.
New Monthly Mortgage Payment. This is your new mortgage payment based on your interest rate, loan length and program. In some cases your monthly payment increases with a debt consolidation refinance but your total debt payments should decrease.
Amount of Debt Paid Off. This is the amount of debt you pay off when you refinance based on your existing mortgage balance, new loan amount and closing costs. Your loan proceeds pay off your current mortgage balance first, then closing costs and any remaining funds go to pay off debt. Any proceeds that remain after paying off debt go to the borrower.
Savings from Refinancing. Our calculator compares your combined current monthly mortgage and debt payments to a new single mortgage payment to determine how much money you can save on a monthly basis with a debt consolidation refinance. For example if you replace $3,500 in combined debt and mortgage payments with a new $3,000 mortgage payment, then your monthly savings is $500.
Property Value Needed to Refinance. This is how much your property must be worth to qualify for the refinance. Lenders limit how much you can borrow as a percentage of your property value. If your new mortgage amount is too high relative to how much your home is worth you may exceed the lender’s limit. If your property value is not high enough you may need to reduce your mortgage amount which likely lowers the amount of debt you can consolidate. Our calculator enables you to understand if your property value meets the requirement to obtain the mortgage necessary to pay off your debt.
A debt consolidation refinance is an effective way to use the equity in your home to lower your monthly debt payments. For example, you may have credit card, student or car loans that charge a high interest rate. With a debt consolidation refinance you can pay off this high interest rate debt with a mortgage with a much lower interest rate. For example, some credit cards charge an interest rate of 20% or higher as compared to mortgage rates which are usually 5% or less depending on your credit score and other factors. Lowering the interest rate you pay on your combined debt, including your mortgage, reduces your total monthly debt payments and saves you money. Our Debt Consolidation Refinance Calculator enables you to determine if you can save money by refinancing your loans into a single mortgage.
You must have sufficient equity in your home to qualify for a debt consolidation refinance. With a debt consolidation refinance your new mortgage is used to pay off both your existing mortgage as well as the debt you want to consolidate. To qualify for the mortgage, the value of your home must be high enough to support your new mortgage amount while not exceeding the lender's maximum loan-to-value (LTV) ratio limit. Loan-to-value (LTV) ratio is the ratio of your mortgage amount to the value of your home. If your new mortgage amount is $80,000 and the value of your home is $100,000 your LTV ratio is 80% -- $80,000 (mortgage amount) / $100,000 (property value) = 80% (LTV ratio). Most lenders apply a maximum loan-value (LTV) ratio of 80% for a debt consolidation refinance and some lenders apply a lower LTV ratios for larger mortgage amounts. Before you apply for a debt consolidation refinance make sure that the value of your home is sufficient to support the mortgage amount you are seeking, otherwise you could exceed the lender's loan-to-value (LTV) ratio limit.
In most cases a debt consolidation refinance lowers your total monthly debt payments but borrowers should be careful before they replace short term debt such as a credit card or car loan with long term debt such as a mortgage. When you replace short term debt with long term debt you extend the length of the short term debt which usually costs you significantly more money in total interest expense over the life of the loan. For example, if you use a new 30 year mortgage to consolidate a car loan with five years remaining on the loan term, it effectively takes you 30 years to pay off the car loan because you pay it off when you make payments on your new 30 year mortgage. So even if your new mortgage rate is significantly lower than the interest rate on the car loan, you usually pay much more in total interest expense over the life of the loan because you have effectively turned a five year car loan into a 30 year loan. Although in the near-to-medium term you have lowered your monthly debt payments, replacing short term debt with long term debt can cost you much more in the long run.
A debt consolidation refinance usually results in lower total monthly debt payments which improves your debt-to-income ratio when you apply for a mortgage. Your debt-to-income ratio represents the ratio of your total monthly debt payments, including your mortgage payment as well credit card, auto and student loan payments, to your monthly gross income. Lenders usually apply a maximum borrower debt-to-income of 43% to 50% to determine what size mortgage you can afford. With a debt-to-income ratio, the less money you spend on non-housing related debt expenses, the more money you can spend on your monthly mortgage payment and the higher the mortgage you qualify for. So a debt consolidation refinance can have the double benefit of lowering your monthly debt expenses and improving your ability to qualify for a refinance. Use our calculator to understand if lowering or eliminating your debt payments improves your ability to qualify for a new mortgage with a lower interest rate.
A debt consolidation refinance is essentially using your home as a bank. In most cases, your new mortgage balance is higher than your previous balance but you have reduced the number of loans you have outstanding and lowered your average interest rate. So instead of borrowing money from a personal loan company or credit card company -- and paying a high interest rate -- you access the equity in your home and pay a lower rate. If you can lower your mortgage rate when you refinance you can save even more money. Either way, borrowing against your home may make more financial sense then borrowing money from a different type of lender or loan provider.
Review our in-depth overview of a debt-consolidation refinance including key borrower considerations and an informative example of a debt consolidation refinance
Borrowers should consider total interest expense over the life of their new mortgage when evaluating if a debt consolidation refinance makes sense. We review when it makes financial sense to do a debt consolidation refinance and when borrowers are better off keeping their existing debt in place even if it has a higher interest rate
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“What do I need to know if I’m thinking about consolidating my credit card debt?” CFPB. Consumer Financial Protection Bureau, June 7 2017. Web.