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Will Debt Consolidation Affect My Next Mortgage Refinance?

By Eric Goodwill

Will Debt Consolidation Affect My Next Mortgage Refinance? Find out here how consolidation could affect your mortgage refinance!

Due to economic problems which included higher unemployment rates, many people are falling deep into debt. To help make debt payments and avoid having to declare bankruptcy, many people are opting to approve debt consolidation plans. While these plans will lower your monthly payments and possibly lower your outstanding balance, these plans will affect you in a number of ways. It could even affect a future mortgage refinance.

Interest Rates

One way that debt consolidation could affect your next mortgage refinance is by impacting your interest rate. Many times, a debt consolidation plan will require a creditor to waive a portion of the debt owed. This will negatively impact your credit score for at least a few years. If you go for a mortgage refinance, and your credit score is still negatively impacted by the debt consolidation, you may be charged a higher interest rate by the mortgage lender.

Excess Fee

Another way that debt consolidation could affect your next mortgage refinance is through excess fees. Since your credit score will be impacted, most lenders will consider your mortgage a riskier investment. To offset some of the risk, most mortgage lenders will charge higher origination fees to make doing the loan worthwhile.

Down Payment

The third way that debt consolidation could affect your next mortgage refinance is by impacting your down payment. In theory, a debt consolidation should reduce your monthly debt payments by either reducing interest rates, extending repayment terms, or forgiving a portion of the debt. Since you have a lower monthly debt payment, you should have more money each month to save towards a down payment. With a larger down payment, you are far more likely to be approved for a mortgage and receive good rates.

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