When you refinance
, you often seek to replace your current mortgage loan with a new loan that has a lower interest rate. The new lender pays off the current lender and becomes the lien holder on your home.
If you have other debts and want to combine loan payments, you may decide to use a consolidation loan
to refinance your mortgage. Advantages of a loan consolidation include:
Paying off consumer debt.
Refinancing may allow you to borrow additional money (a "cash-out" refinancing) to pay off credit cards or other debt or even to use the money for another purpose. A benefit of using your home to refinance is that mortgage interest is generally tax-deductible
(unlike the interest on auto or credit card debt). However, keep in mind that home equity debt cannot be discharged as easily as consumer debt if you should ever be forced to file for personal bankruptcy