Debt Consolidation Loans

A debt consolidation mortgage is when you borrow more than you owe on your current mortgage and use the difference to pay off car loans, student loans, credit cards or other debt. Some programs allow you to borrow more of your home’s value than others.

A debt consolidation mortgage works like a cash out refinance, and may even be called a debt consolidation refinance. You borrow more than you currently owe but use the cash toward other debt rather than putting it in your pocket. The credit accounts are paid off through the closing in most cases.

Your finances are vetted to confirm you can afford the higher mortgage payment. You’ll need a home appraisal to confirm you have enough equity — most loan programs only let you borrow up to 80% of your home’s value.

Below is an example of how much you’d save by taking out a $300,000 debt consolidation mortgage to pay off $50,000 worth of credit card and car loan debt. The loan also includes a $250,000 mortgage balance on a $500,000 home. The example assumes the current monthly payment for the car and credit cards is $750, and the current principal and interest mortgage payment is $1,350 per month.

Conventional cash-out refinance

If you have a credit score above 620 and a solid employment history, you can borrow up to 80% of your home’s value with a conventional cash-out refinance. I will need to verify your income and will require a home appraisal to confirm the value of your home. An added bonus: Because you can’t borrow more than 80% of your home’s value, you won’t pay monthly mortgage insurance (mortgage insurance protects lenders if you default on your loan).

FHA cash-out refinance

Borrowers with scores as low as 580 may qualify for a debt consolidation mortgage backed by the Federal Housing Administration (FHA). Like the conventional cash-out refinance, an FHA cash-out refinance caps you at borrowing 80% of your home’s value and requires proof of income and a home appraisal. One big drawback to FHA cash-out refinances: You have to pay two types of FHA mortgage insurance, including an upfront lump-sum premium of 1.75%. The second charge is an annual mortgage insurance premium that ranges between 0.45% and 1.05% and is divided by 12 and added to your monthly mortgage payment.

VA cash-out refinance

Eligible military borrowers may be able to borrow up to 90% of their home’s value with a loan guaranteed by the U.S. Department of Veterans Affairs (VA) . Income verification and a home appraisal are required. Although there’s no mortgage insurance requirement, VA borrowers may have to pay a VA funding fee between 2.3% and 3.6% of the loan amount, depending on whether they’ve used their eligibility before.

Home equity loans

A home equity loan allows you to take out a second mortgage for the amount you’re eligible to borrow without paying off your current mortgage. You’ll receive the funds in a lump sum and typically have a fixed-rate payment and term that ranges between five and 15 years.

Home equity lines of credit

Home Equity lines of credit (HELOCs) work like a credit card at first, allowing you to borrow money as needed and pay off the balance during a set time called a “draw period.” Payments are usually interest-only during the draw period but must be repaid on an installment schedule once the draw period ends.

If you’re ready to get rolling, you can start your application now or call 206.335.7334 to discuss your particular needs.