Adding debt to Mortgage

Adding debt to your existing mortgage can be a convenient way to consolidate your debts into one place and save on interest payments.

If you have credit card debts, incurring an interest rate of 15% or more, this strategy may be particularly effective.

Can I add debt to my Mortgage?

Many people who have witnessed a growth in house prices will be able to easily remortgage. Remortgaging enables the homeowner to get a bigger mortgage against the increased value of your house. The extra money can then be used to pay off the other debts. This means you will be paying the old debts back at an interest rate equivalent to your mortgage interest rate.

For those who recently bought houses in America, it may be very difficult to remortgage for a bigger value of mortgage. With house prices falling, the % of the house value that is mortgaged will increase. There is the potential for getting a 100% mortgage, but these are usually be more expensive. Also, mortgage lenders will probably be cautious about increased lending with falling house prices. In these circumstances, the only thing is to hope house prices resume their upward trend. Unfortunately, this may be quite a while.

Arguments against adding debt to Your Mortgage.

1. Encourages people to create more debt.

If you do consolidate your debts under your mortgage, you have to be aware that you have not solved your financial problems; you have merely provided a slightly better solution for the management of your debt. If you don’t address the fundamental shortcomings of your financial situation, your debt will continue to rise, and there is a definite limit to how much you can keep remortgaging and adding to your debt.

2. Takes longer to Pay Back.

A mortgage repayment period is typically 25 - 30 years. By placing the debt into our mortgage we increase the mortgage size and it means it will take much longer to pay back. This means that the total interest payments could be higher over the course of the mortgage. In some cases it may be better to keep paying back a personal loan at 7% interest. The rate is not much higher than a mortgage and it will make you pay off your debt quicker.