Existing property with equity
Being able to consolidate various high interest debts into your mortgage should in most cases save you a significant amount of money from your periodic debt repayments. This is because your mortgage is probably one of the cheapest forms of credit you are ever likely to qualify for.
If you have money outstanding on credit cards, personal loans or interest free offers, then there is potentially significant repayment saving in consolidating these into your mortgage. Whether you will be able to qualify for such a consolidation will largely depend on the value of your property and the amount of the outstanding mortgage – ie. your available equity.
You will need to have your new overall loan to be under 80% of the current value of your home after consolidation. If your existing mortgage is already 85% of the value of your home then there is insufficient equity to proceed with this consolidation alternative.
Secured vs Unsecured debts
Secured debts tend to be cheaper than unsecured ones. One example of secured debts is a car loan or a boat loan. It rarely makes sense consolidating these into the mortgage unless you have plenty of equity and would like to reduce your repayment amounts to the maximum possible.
Whereas unsecured debts often cost you double digits in interest and these are best candidates for mortgage consolidation.
Your current credit position
What does your credit report show today? Do you have an outstanding part nine debt agreement of an undischarged bankruptcy? If you do it will not be possible to qualify for any finance until after your discharge.
If you have obtained your initial mortgage before your credit history issues, you may have a bank loan with a fairly low interest rate. Sometimes debt consolidation into the mortgage can not be justified after your credit history has been tarnished because your mortgage rate can go up from a clean credit rate to a non-conforming bad credit rate (up to 1 – 2 % higher). You would need to calculate to see whether paying a higher interest rate on your whole mortgage still provides you with benefits or perhaps you are best to keep the mortgage going as is because it does not reflect your credit problems.
Do you have sufficient income to qualify?
The other hurdle you will need to get over is income. You will need to demonstrate to your mortgage provider that you are able to afford the higher mortgage resulting from debt consolidation given your income. Remember that if you are now in cash employment, your application will probably be declined as you will not be able to substantiate your income.
Lenders will be assessing your loan application taking into account your age, income, credit history and other obligations. Sometimes any one of these can affect your qualification for a mortgage refinance.