If you have difficulty keeping up with your bills, refinancing your mortgage could potentially lower your monthly expenses and provide some financial breathing room. In other cases, however, refinancing may not be the best choice for your situation.
Review these factors if you are considering a mortgage refinance because of significant debt.
Do you plan to stay in your home?
If you want to remain in your home for a few years, you should balance the cost of refinancing the mortgage with the monthly savings. Usually, it takes at least five years to break even from the cost of refinancing. If you struggle to pay the upkeep for the property, consider downsizing to a smaller home rather than refinancing.
Do you plan to use home equity to consolidate debt?
Some people who have unpayable debt refinance their homes and use the equity to pay off credit cards and personal loans. However, financial advisors recommend against bundling secured debt such as a mortgage with unsecured debt. If you fall behind on payments, you could lose your home.
Do you qualify for modification?
If you cannot pay your mortgage, ask your lender about a modification program. Some banks and mortgage companies offer alternatives to foreclosure for borrowers who owe more than the value of their home or have poor credit and cannot refinance. Modification lowers your interest rate or monthly payments, but may extend the term of your mortgage and increase the amount of interest paid over the life of the loan.
If refinance seems like a temporary solution for a larger problem, bankruptcy could provide a debt-relief solution that allows you to keep your home.
