Rolling Debt Into A Mortgage: Is It A Good Idea?

By: Kristina0 comments

With mortgages having a lower interest rate than credit cards, you might be thinking about rolling either some or all of your unsecured credit and loan debts into your mortgage. Now while this does sound like a more convenient solution, it’s not exactly a painless experience. There are a couple of things that you need to consider before you decide to opt for this option for better managing your debt. 

Rolling Debt Into A Mortgage: How Does It Work?

Debt consolidation is when you secure one single loan to pay off some of your smaller loans, which allows you to account for only one payment per month instead of several. As a result, this makes your debt payment more manageable. The idea is to lower the interest rates when managing several debts. But can you add credit card debt into a new mortgage? Yes, you can.

Many homes come with equity, which is the difference between a house’s value and how much is owner owe’s for that property’s mortgage. Let’s assume that if the house’s value is $250k and you owe $150k on the mortgage. This would mean You’re eligible for an equity worth of $100k. And since $100k is a nice amount of change to have, you can pretty much consider using it to pay some of your high-interest debts down by having them consolidated into a mortgage. 

The way rolling debt into mortgage works is that you have your current mortgage agreement broken down and roll several debts of high interest like payday loans, credit card debt, as well as other non-mortgage debt into a new kind of mortgage at a lower interest. However, doing this will increase the mortgage debt because of the number of non-mortgage debts that you roll into it. 

You’ll also have to account for thousands of dollars more for the amount of breaking your old mortgage as well as a premium for potential Canada Mortgage and Housing Corporation (CMHC) on the increased mortgage balance. On the bright side, the interest that is paid for non-mortgage debts goes down.

Should You Be Rolling Debt Into A Mortgage?

While consolidating debt into a first-time mortgage does seem like a good idea (and it could be), you need to be absolutely sure that this is the right thing for you. If so, then here are some of the most essential factors that you need to consider:

  • Is there enough equity in your property that will allow you to borrow more money? 

Be advised that when you’re borrowing against your mortgage, you’re borrowing against your property’s value. If you’re borrowing approximately or over 80% of your home’s value, then it’ll be quite difficult, or even expensive to borrow more money. 

  • Does the mortgage deal enable you to borrow more, and are there other costs attached?

You should inspect the terms and conditions of your mortgage, to see if it allows more borrowing. And if it does, then see what other costs are likely going to be involved (fees, for instance). Just keep in mind that administrative costs or fees are probably going to be included in the loan, which will make your debt even bigger. 

  • Will a remortgage be forced on you? 

If a brand new mortgage deal means that you have to borrow more money, then you might possibly incur more costs. For example, if you’re getting out of an ongoing deal, you will likely incur early repayment costs. And if that’s the case, then these are likely going to be added to your new loan, thereby increasing your debt, making it all the more expensive overall. 

  • How much will you be charged for it?

If this is indeed what you want, then you had best get in touch with your mortgage lender and find out how much you can borrow and determine the cost that comes with it. The feedback will ultimately let you know whether rolling credit card debt into a new mortgage is indeed a good idea. 

Besides that, there’s also the costs for breaking your current mortgage, a potential new CMHC premium, and other legal fees that are involved. In other cases, your property has to be assessed, and that’s going to cost you as well. 

These are pretty much some of the most important things that you need to factor in when deciding whether rolling credit card debt into a mortgage is indeed the right choice for you. 

Reasons To Avoid Rolling Debt Into A Mortgage

We do not seek to discourage you to do a one-off payment of all your debts with an overall less interest rate than credit cards. Yes, such facilities are possible, but there are certain negative factors that you need to take into consideration as well, some of which include:

  • Adds‌ ‌More‌ ‌Years‌ ‌To‌ ‌Your‌ ‌Debt‌

Mortgages are usually paid off between 15 to 30 years. However, by rolling debt into mortgage, you’re basically adding more decades to the overall loan that you have gathered in one place. Put simply, it will take you a lot longer to pay off your debt by opting for this option. 

  • You‌ ‌Could‌ ‌Run‌ ‌Out‌ ‌Of‌ ‌Equity‌

Some people aren’t wise in using the equity in their property as a means to pay off their debt and could even use it on frivolous things such as vacations. In worst-case scenarios, they will start to consider their house as an ATM while also forgetting that equity isn’t unlimited. If you’re not careful with your equity, you may use it up before you actually need it like in medical emergencies or a job loss. 

  • It Won’t Solve‌ ‌Financial‌ ‌Problems‌ by Itself 

Consolidating debt isn’t going to guarantee that you’re not going to go into debt again. If you’re known for living out of your means, it could very well happen again once you’re debt-free. So to keep this from happening, you need to construct a proper budget for yourself and stick with it. You should also consider saving up for an emergency fund to pay for the out-of-the-blue financial surprises instead of charging them.

  • You Could‌ ‌Stack‌ ‌More‌ ‌Debt‌

Even after consolidating debt into a first-time mortgage, most people continue using their credit cards. This way, not only will they end up paying more for the mortgage, but they’ll once again end up in hot water with their lenders. What’s more, is that having too much credit card debt can sink loans. Sometimes, qualifying as possible if users agree to pay their credit cards off and close their accounts. However, doing so will likely lower their credit score. 

There’s also no way of knowing whether users can qualify to have their non-mortgage debt consolidated. If you’re thinking about borrowing against your home, then you should know that every borrower and lender is different. It just depends on what your house’s value is, the amount of debt you want to be consolidated into your mortgage, the amount of equity you have in your property, and what your credit score is.

Other Options For Consolidating Your Debt

If you have second thoughts about using your home equity to pay the debts off, don’t worry as there are other debt consolidation methods that you can opt for.

Debt‌ ‌Consolidation‌ ‌Loan‌

If you don’t want to use your home equity, you may be liable for a debt consolidation loan through a credit union, finance company, or a bank. This loan is used to pay unsecured debts off, offering you a single and monthly payment to only one lender, granting you a possibly reduced interest rate. However, to acquire this loan, you have to have good collateral, good credit, or perhaps a cosigner who has good credit. Sometimes you also need a stable income source as well.

Home‌ ‌Equity‌ ‌Line‌ ‌Of‌ ‌Credit‌ ‌(HELOC)‌

HELOC allows homeowners to use their property’s equity as they would with a credit card. After a lender examines how much equity you have in your house, and your creditworthiness, you’ll be offered a credit line. Often the amount of time you get is fixed – typically 10 years – which is when you take draws on your credit card and pay interest. And after 20 years, the credit line closes and you need to pay both the interest and principal.

Credit‌ ‌Cards‌ For Transferring Balance

Another way to consolidating credit card debt into a mortgage is to transfer balances between one credit card to another. The biggest advantage that this option offers is when there’s only 0% APR. Sometimes, credit card banks provide a temporary opportunity when the cost of transferring balances between credit cards usually is either marginal or free. The debt between credit cards can be shuttled for a tiny fee and later allow you to leverage a couple of months without any APR.

Conclusion

Despite the factors that you need to be cautious of, home‌ ‌mortgage‌ ‌debt‌ ‌consolidation can be a realistic way for you to successfully settle your debts. And if that’s not you, then there are other alternatives available for you to consider, just in case. To know whether this is the right move for you, you’ll need to compare lenders, rates, terms, and offers.

FAQs

Can you consolidate your debt into your mortgage?

Ans: Yes, it’s possible. 

Can you consolidate debt into a new mortgage?

Ans: Yes

Can you add credit card debt into a new mortgage?

Ans: Yes

How does consolidating debt in a first-time mortgage work?

Ans: Your current mortgage agreement needs to be broken down and has several high-interest debts like payday and credit card loans rolled into one new mortgage of lower interest. 

Is it better to consolidate debt into a mortgage?

It makes it easier to pay for all loans in a single monthly payment. But it might add more debt and can be longer to pay. 

Is it worth refinancing to pay off debt?

That depends on your needs and whether there are too many loans and debts for you to keep track of. 

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