Consolidating personal loan mortgage
But on the other hand, having maxed out the limit on your credit cards also hurts your score.
Consolidating the two into a 15-year mortgage at 4.5 percent saves almost $100,000 more.Those with enough equity in their homes have been able to substantially reduce the monthly payments on credit card debt, student loans and personal loans, says Michael Moskowitz, president of Equity Now, a mortgage bank in New York City.“I wouldn’t recommend it to someone who is going to run up their credit cards again,” he says.Too much credit card debt can get in the way of a homeowner trying to qualify for a cash-out refinance because they don’t meet the lender’s debt-to-income ratio requirement, or DTI.In other words, their monthly debt expenses are too high compared with their income.This is according to Bill Rawson, Chairman of the Rawson Property Group, who says this tactic is one which many shrewd people, particularly the younger management sect, have been adopting over the last decade.
He says instead of paying huge interest rates on hire purchase items such as cars and on personal loans, e.g.
With the news media increasingly publishing advice on how to survive lean economic times and with the average South African’s disposable income now 16 percent lower (in real terms) than it was in 2007, those struggling to balance their finances are advised to consolidate their debt into one single mortgage account.
Instead of paying huge interest rates on hire purchase items such as cars, the younger management sect put all their debt into a single bond, paying it off in most cases by means of monthly debit orders.
“Depending on the circumstances, (use equity) for big-ticket items such as tuition, a sudden illness that devastates the budget, sometimes even the purchase of an automobile when you have thought things through and you have compared that financing cost to what might be available,” he says.
“But don’t run out and use it for credit cards for vacations, for frivolous things because it is not an unlimited source, as we saw when the market turned.” The main concern with using equity to pay off credit cards is that often, it is a temporary solution to a much bigger problem.
But in some cases, it’s possible to qualify for a debt consolidation mortgage by excluding the credit card debt from the DTI, as long as the homeowner agrees to pay off and close the accounts at closing, says Matt Hackett, operations manager for Equity Now.