Debt Consolidation Refinance Calculator
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. You may also be able to reduce, or consolidate, the number of loans you have outstanding into one mortgage.
To use the calculator, input your current mortgage payment and balance, current debt payment and balance as well as your new mortgage amount. Our calculator compares your combined current monthly mortgage and debt payments and loan balances to a single new mortgage and monthly payment to determine how much money you can save on a monthly basis with a debt consolidation refinance.
The calculator also factors in the loan program, interest rate and length of your new mortgage so you can compare different refinance options. You also input your current 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.
Based on your inputs the calculator shows you how much debt you can pay off as well as an cash proceeds available, or funds you are required to contribute, when you refinance. These figures take into account your mortgage closing costs which are important to keep in mind. The calculator also determines how long it takes to recover your closing costs based on your lower monthly debt expense.
A debt consolidation refinance can be complicated because it involves several loans and interest rates. In simpler terms, you increase your mortgage balance and use the equity in your home to pay off more expensive loans. Use our Debt Consolidation Refinance Calculator to simplify your analysis and understand if this mortgage option is right for you. We also offer a version of this calculator that does not require personal information.
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What Borrowers Should Know About a Debt Consolidation Refinance
Reduce Your Monthly Debt Payments
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.
Check the Equity In Your Home Before You Apply
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.
Replacing Short Term Debt with Long Term Debt
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.
Consolidating Debt Can Help You Qualify for a Refinance
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.
Use Your Home as Your Piggybank
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.
More FREEandCLEAR Mortgage Resources
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
Got mortgage questions? We love answering them. Submit your mortgage questions and receive an informative response within 24 hours
Compare mortgage refinance rates for top lenders near you. Comparing rates and fees for multiple lenders is the best way to save money when you refinance
Debt Consolidation Refinance: https://www.consumerfinance.gov/ask-cfpb/what-do-i-need-to-know-if-im-thinking-about-consolidating-my-credit-card-debt-en-1861/