Debt consolidation mortgage refinance can be done in 2 ways, which are discussed below.
1. Cash out refinancing to pay off debt
If you have built enough equity in your home, then you can opt for cash out mortgage refinancing. It is somewhat similar to taking out a refinance loan, only difference being that you obtain a larger amount of loan than what you presently owe on your mortgage. You can utilize the extra amount to pay off other debts (such as, credit card loans, store bills, medical bills, etc.). In this way, you are actually utilizing the equity that you've built up in your property to repay your other bills.
2. Consolidating first and second mortgages into a refinance loan
If you have first and second mortgages on your property, then you can consolidate both of your home loans with the help of debt consolidation mortgage refinance. You need to take out a refinance loan equal to the combined balance of your first and second mortgages. This helps you to replace your existing mortgages by a new refinance loan. Your monthly interest rates also get reduced in comparison to the combined mortgage payments on both the loans. Thus, it will be easier for you to make your monthly payments on time.
In spite of all these benefits, debt consolidation mortgage refinance may not always be a good option for you. You'll have to pay PMI (Private Mortgage Insurance) if you're borrowing an amount that is more than 80% of your home value. Moreover, you are taking out loan against your home equity that you've built up in years; you may lose your home if you're unable to repay the loan on time. Therefore, it is advisable that you evaluate your financial situation before borrowing a debt consolidation mortgage refinance loan in order to make sure that you'll be able to repay the debt/loan within the stipulated time.
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