Can I Consolidate Credit Card Debt Into a Mortgage?
It is no secret that most credit card interest rates are much higher than mortgage interest rates. Credit cards are an unsecured debt, which means it is riskier for the lender to provide you these microloans than to provide you the funds to purchase a home, which is a secured loan.
Since mortgages carry lower interest rates, you may be wondering if it is possible to consolidate your credit card debt into your mortgage. While it is something you can do, you will need to weigh the pros and cons before determining whether this is the right choice for you.
Pros of Consolidating Credit Card Debt Into a Mortgage
The most compelling reason to consolidate your credit card debt into your mortgage is that it can lower your monthly expenses and save you money in interest. In most cases, it will save you a significant amount on your monthly payment, especially if it is rolled into a longer term mortgage.
Cons of Consolidating Credit Card Debt Into a Mortgage
The biggest drawback to consolidating credit card debt into your mortgage is that if you fall on difficult times and can no longer make your monthly mortgage payment, the bank can foreclose on your home. However, if you fall behind on credit card payments, your account will be closed and the debt sent to collections. At that point, you may be able to settle the debt for a fraction of what you owe. While your credit score will definitely take a hit, you are not in danger of losing your home.
Another drawback is the possible fees that come with this consolidation. Whether you are refinancing an existing mortgage or rolling your debt into a new one, you may face higher fees if you include additional debt.
Before making your decision about whether to consolidate your debt with a mortgage, you will want to examine your financial affairs to figure out how you ended up in this situation in the first place. Track your spending for a few months to figure out if you are wasting money on unnecessary expenses or living beyond your means. If you are relying on credit cards to survive, consolidating the debt is a bad idea, as you will end up with both a higher mortgage payment as well as more credit card debt in the future.
It is also a good idea to look into your other options for debt consolidation. If you have good credit, you may be able to qualify for a 0% APR balance transfer card. This will help you avoid the hefty fees of refinancing your mortgage or adding existing debt to your mortgage. While you may have to pay a 3%-5% balance transfer fee, if you can pay off the debt during the introductory period, you can save a significant amount of money.
If a balance transfer card is not right for you, you could apply for a debt consolidation loan or enter a debt management program. Both of these options could save you money and help pay off your credit card debt faster.
If you decide to consolidate
If you decide to consolidate your credit card debt into your mortgage, you will need to include certain information in your loan application. When you fill out the form, write down the purchase price, your down payment, and the additional debts you wish to include. You will need to include the name of your creditors, the amount you owe, and the monthly payments.
Including credit card debt in your mortgage application will increase the amount you need to put down, and as a result, it may be harder to get approved for the loan. Thus, it may be smarter using a smaller down payment for your home and using any additional cash to pay off some credit card debt.