I’m in a coding bootcamp but wanted to take a moment over lunch here to answer this question that I’m seeing pop up via email, PM and I’m also hearing more ads on the radio offering this.
I think this is a marketing tactic related to the rising interest rates and home prices (as companies try to generate additional revenue).
This is not legal or financial advice but I believe the short answer is: it depends.
The longer answer is it depends on your circumstances. While rolling high interest debt into your lower rate mortgage may sound good , there are a number of variables to consider, two of which are:
- If you take the surplus of income and turn it around into paying down your home mortgage, that could be a good thing.
- Doing so raises the value at which you have to sell your home (in a peaking market, this may cause trouble for you, if you have to sell).
What do I mean by the first option? If one has credit card debt of $25K that’s costing $450 in interest monthly, you may be able to roll that into a mortgage refi. But consider that may raise your mortgage payment. If it does so by $125, that leaves you $325. If you are disciplined and build an emergency fund with that or invest it or turn it back around into paying down the principal of the home, I could see this being a good option.
However!!! (emphasis intentional), know that it raises the amount you need to sell your home at by that corresponding value plus some (if you use a percentage based commission agent to sell, for example). If you are looking to stay in your home long term, that may still be a good option. But – and here’s the bottom line of this post – please understand it’s putting you in a position where you must have continued market appreciation to sell (unless you have a lot of equity).
And if you have a short horizon on home ownership, or are looking to sell soon, this could put you in a bad spot.