Remortgaging is a common choice to gain access to some extra liquid fund that is lying idle in the form of home equities. Sometimes, it is done to clear the outstanding dues which have gone up to a higher amount. However, remortgage financing should never be used as a financial tool to pay your credit card debt. The following five reasons expound this fact.
You will be converting secured debt into unsecured debt
When you take out mortgage loan to pay back your credit card debt, you actually convert your unsecured loan into secured loan. The decision does not prove right in most of the cases. If a large sum is not involved, the credit card companies will not sue you in the court if you fail to meet timely payment. Even if you are sued, it is less likely that your property will be foreclosed. Mortgage loan presents a completely different picture. You have to pay security interest on mortgage loan. So there is a chance of property foreclosure if you are not diligent in making timely payment. Furthermore, there are so many legal loopholes in case of property foreclosure that the lenders always seek a chance to end your right on ownership.
Refinancing cost is a heavy amount
You have to bear a considerable amount for refinancing. The cost includes fees for home inspection and property value assessment. In addition to these, you need to pay for closing and litigation too. The fees differ from one refinancing company to another and depend on total mortgage amount plus your credit score. Even though mortgage loan interest has hit the rock bottom level and so may be lower than interest payment on your credit card debt, it is better if you don’t go with this option. What you spend for closing purpose can be used in repaying credit card debt.
Your credit score may drop further
When you apply for a mortgage loan, your credit history will be thoroughly checked. Chance is high that your credit profile will suffer damage due to mortgage refinancing. Any negative impact on your credit report is never taken lightly by the lenders and so may create problems if you ever to take loans in future.
It will be difficult to sell your house
If you put your house on sale, you need to clear all your mortgage loans. There is another binding on you to pay for real estate commission fees. It means, mortgage refinancing makes an addition to your payment obligation. Therefore, you have to fix the selling price higher than your mortgage loan. Most of the finance houses require the homeowners to keep total mortgage amount less than 80% of home value. The flipside is you will get a severe blow in case; property price goes down in days to come.
Repayment period extends
It takes you a longer time span say, 15-30 years to payback mortgage loan. Not only that, you have to pay credit card debt as long as mortgage loan repayment is going on. You will end up paying more interest that could have been averted if you would have chosen to pay off your credit card dues as soon as possible.