Mortgage rates remain at an all-time low. You may be considering a refinance, leveraging home equity to reduce monthly payments. Lenders may suggest rolling DMP debt into the new loan. While this may be a viable option for some, there are important comparisons to make before including unsecured debt in the arrangement. Your FamilyMeans counselor is available to discuss details and answer your questions so that you can make an informed decision.
Is extending repayment of DMP debt a critical need?
Has your income situation changed making repayment unaffordable? Compare remaining DMP payments against the new 15 – 25 year loan term. Extending payments on unsecured debt will cost interest, time, and reduces asset/equity amounts. If you can manage ongoing DMP payments to repay your DMP debt within the short-term plan, you will generally pay less interest than you would if the DMP debt is rolled-into the new loan.
Is the mortgage rate equal to or lower than your average DMP APR?
Compare your average APR on the DMP to the new mortgage rate offered. Counselors can run calculations to compare your DMP interest rates and averages, sharing your total amount to be paid. Just ask!
Are you practicing budgeting techniques?
In addition to interest and payment considerations, it is also important to implement simple budgeting practices to maintain control of spending and saving opportunities.
Is your financial situation stable enough to move unsecured debt to a secured loan?
Unsecured credit debt becomes secured by your most important asset, your home, when rolled-into a home equity loan. If your finances are unstable, options to negotiate may be lost.
Are you prepared to NOT use credit?
You might be tempted to use credit again, once restrictions of the DMP are eliminated. This is a major pitfall of rolling unsecured debt into a new loan. Be diligent in monitoring your spending to avoid re-building credit balances! Contact your counselor to refresh your budget and maintain control of your finances!