Consolidating Credit Card Debt into A Mortgage

Before 2007, rolling outstanding credit card debt into a mortgage was fairly common. Basically, in order to take advantage a lower interest rate, people with large sums of credit card debt could roll that debt into the terms of a mortgage.

For example, you could take out a $305,000 mortgage for a $300,000 mortgage loan payment in order to cover $5,000 in outstanding credit card debt. This practice is much less common, and isn’t advisable at the moment.

Consolidating credit card debt can end up costing more

Even this nominal increase on the principle of the loan can cost you more than paying down your credit cards over the next 2 to 5 years. Instead, you are stretching the terms of the credit card debt out over 20-30 years—this is almost always more expensive unless you get a super low refinance rate.

You should do the math, too: if your closing costs aren’t paid off by your savings on the interest rate in less than five years, you probably aren’t getting that great of a deal. This also means you aren’t actually saving any money rolling credit card debt into a mortgage refinance.

You should ask yourself, “ Did extravagant spending habits compel me to refinance just to pay down outstanding credit card debt?” If the answer is yes—very often it is—you should reassess your refinancing options. It is more than likely that, once your debt has been neatly rolled into secured debt, you will find yourself comfortable with taking on new credit card debt. This is a dangerous game.