There is a common adage which says you should never leverage your house (a long term asset) to pay off short term debt. The reason being you don’t want to lose your house over what should otherwise be credit card debt or medical bills or some other, less important debt. And while there is some merit to this philosophy, your mortgage is usually going to have the most favorable interest rate of all of your debt instruments (loans, credit cards, lines of credit, etc.). Further, the interest is tax deductible, meaning you can lower your taxable burden with mortgage debt. So assuming you will continue to make your mortgage payments even if they go up a little to encompass the other debt, there can be some real benefits to consolidating other debt into your home mortgage.

But this is where it gets complicated; you need to make sure to do it the right way. And by that, I mean calculate the potential savings monthly, and then make sure the savings outweigh the closing costs. You also need to be sure you won’t be pushing yourself into a mortgage that has mortgage insurance if you weren’t previously paying it. The added expense will generally mitigate any long-term savings. Finally, you want to be sure your interest rate isn’t going to go up on your current mortgage so much that the long term costs of the mortgage interest raising outweigh the short term savings by consolidating.

But assuming you can lower your interest rates and consolidate your debts, a mortgage can be a great way to lower your monthly costs, lower your overall debt exposure, and free up money every month to pay your house off faster.

If you are considering consolidating debt with a mortgage, please feel free to contact me to go over your options. If you have anything to add about using a mortgage to consolidate debt, please leave a comment.