Should I roll debt and closing costs into my home mortgage?


Rolling your debts and closing costs into your home mortgage can be double-edged sword. It can help you in the short term by reducing your monthly payments, but it can also hurt you in the long run because you might have to pay significantly more interest on your loans.

As the markets are down these days, it might be easy to find financing options at low interest rates and in that case consolidation might be a good option. You really have to do a detailed analysis to find out if the option suits you or not. Following are some guidelines you should follow in order to evaluate your debt consolidation options.

  • First of all you need to put your credit cards (and other debt based money spending instruments) away so that you can stop impulsive expenditures. You need to put a fixed number on your debt for analysis and that is not possible with spontaneous spending.
  • Now you need to create a cash flow schedule of your future payments for the entire payment time period for both scenarios i.e. for the one where you continue with your current plan and for the one where you consolidate your debts. Interest rate will play a key role here.
  • You should compare the monthly cash flows for both scenarios. In the initial months you will have lesser payments for consolidated debts and in the later months you will have lesser payments for your current plan because the credit card debt would have been paid off early and only the mortgage payments will remain.
  • Now you should if the consolidated debt scenario has you paying less over the course of the loan you should take that option, otherwise not. As mentioned before, interest rate has a key role here. If it is low your future payments would be low as well.

Remember these are only general guidelines and are based on a simple scenario. It is only natural that cases will differ from individual to individual and that you may have problems making these calculations. Hire the help of a finance professional before making a final decision to avoid costly mistakes.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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