Value of consolidating credit card debt tool
While consolidation in the first mortgage eliminates the high payments on the non-mortgage debt and increases tax savings, these are more than offset by higher mortgage insurance premiums and smaller debt reduction.
The aim of a debt consolidation loan is to reduce the burden of multiple regular debt repayments.November 22, 2004, Revised July 18, 2007, September 4, 2007, February 25, 2011 Before the financial crisis, it was possible for some home buyers to consolidate short-term debt into their purchase mortgage, usually to reduce their payments, often making themselves poorer in the process.After 2007, higher down payment requirements made it very difficult.Their focus is the cost difference between the non-mortgage debt and the mortgage that would consolidate that debt.They ignore the fact that if they don’t consolidate, their mortgage would be smaller and therefore less costly.The consolidation increases the loan from $90,000 to $95,000, and the ratio of loan to value from 90% to 95%.
If a 95% loan-to-value ratio remains within the lenders underwriting requirements, the consolidation will work, but if 90% is the maximum allowable ratio, it won't.
Consolidation reduces the total monthly payment in this case mainly because of lower debt repayment.
With consolidation, the borrower will owe $260,484 at the end of 6 years, which is her best guess as to how long she will be in the new house.
Based on information provided by the buyer, I entered the terms at which she can borrow under all three options.
The $270,000 and the $285,000 first mortgages are both no-cost at 6% for 30 years -- they differ only in the mortgage insurance premium.
The calculator measures cost as total monthly payments over the 6-year period; plus the lost interest on those payments (interest that could have been earned but wasn’t); minus the tax savings on interest, including the interest earnings on tax savings; minus the reduction in debt balances over the 6 years.