Finance

Can You Roll Credit Card Debt Into Mortgage?

May 9, 2022

Tucked next to your driver’s license, your favorite coffee shop’s punch card, and maybe a family photo or two, your credit card is an important part of your wallet and your financial health. But when expenses increase and your statement starts to become difficult to pay, you might start looking for a little extra help paying down that bill. So can you roll credit card debt into mortgage payments?

Yes, you can roll credit card debt into your mortgage payment. But, this option comes with some risks that may cause more harm than good if you’re unaware of them.

Before you move forward, keep reading this guide to find out if it’s the right decision for your financial needs.

Rolling Credit Card Debt Into Mortgage: How It Works

Your home’s equity may be the key to easing your credit card debt. However, you may need help determining the best way to unlock it without jeopardizing your future financial security. To better understand how this can be done, let’s break down the differences between credit card debt and a mortgage—and how one can roll into the other.

Credit Card Debt vs. Mortgage Debt

Loans tend to be classified under one of two categories: secured or unsecured debt. Your credit card debt is considered unsecured while your mortgage is secured.

Secured debt requires collateral backing in case of non-repayment. This collateral can be anything from your car to your home. If your contractual obligations to the lender aren’t met, your lender can pay themselves back by taking your collateral.
Unsecured debt, such as credit card debt, doesn’t take collateral into account before extending credit. Because there’s no collateral to help lenders feel secure, interest rates are much higher compared to secured debt like your mortgage.

How to Ease Credit Card Debt With Your Mortgage

If you were to roll credit card debt into mortgage payments, what would that look like?

First, you would have to break your existing debt or mortgage loan.
Then, replace that old one with a new loan so you could draw up new terms.
If you’re approved, you’ll get the funds you need to pay off your credit card debt but it will take longer to pay off your bill and you may have a higher interest rate. Keep in mind, that you’ll need to refinance for more than you owe to access those funds for credit card payments.

You’re not technically rolling your credit card debt into your mortgage. Rather, you’re changing the terms of your mortgage loan to borrow more money and then use that money to pay down your debt. That’s why this payment strategy is also considered a debt consolidation refinance.

How Much Credit Card Debt Is Enough to Roll Into Your Mortgage?

This strategy is best suited for credit card debt that runs in tens of thousands since it’s more likely to pay off in the long run. You’ll be able to make large payments to pay down your credit card bill right away.

However, if you only have a few hundred dollars or even a few thousand dollars in debt, the potential change in your mortgage rate will cost more than it’s worth to pay off your credit card bill.

Benefits of Refinancing Mortgage to Pay Off Credit Card Debt

Many homeowners turn to cash-out refinance if it means getting rid of high-interest debt such as credit card debt. But there may be a few more perks to this repayment strategy besides seeing a smaller number on your credit card bill.

For example, rolling your credit card debt into your mortgage allows you to:

Minimize your number of monthly payments.
Save money when you no longer have to pay high-interest rates.
Pay off multiple debts quicker
Obtain quick access to the cash you need.
Have the opportunity to switch to a better mortgage

Costly interest rates can hold you back from a financially stable future. So, if you qualify, then you have the opportunity to transform high-interest debt into more manageable, lower monthly payments.

The Risks of Refinancing for Credit Card Debt

The biggest risk to rolling credit card debt into your mortgage is that you could lose your home over a debt that previously hadn’t required collateral.

But, there are more risks you need to take into account such as these:

It extends the length of time it takes to pay off your mortgage.
You may re-enter into credit card debt without the right financial precautions.
Your home’s equity is lowered along with its value.
The closing costs can be expensive.

For some households, the rewards will outweigh the risks. But, that may not be the case for you. When it comes to your financial future, know your options so you can ensure you’re making the best choice for yourself.

Dealing with Mortgage Debt

Can you have too much mortgage debt? And how do you know if it is too much?

Yes, you can have too much mortgage debt. Your monthly payment should be 28% or under your average monthly income. So before you roll your credit card debt into your mortgage, consider the impact it will have on your monthly mortgage payments.

Also, when you roll your credit card debt into your mortgage, you may have to extend your mortgage term which can lead to you paying more money for much longer.

The Qualifications

If this option sounds viable for you, the first step is to make sure you meet all the qualifications. While the loan type and the lender influence eligibility, some general factors that lenders look for include:

The amount of equity in your home
Your financial history
Your current loan type
Your credit history
Proof of income

Many lenders prefer borrowers to have a credit score of at least 720 and enough equity in their home to pay off their debts.

How Much Equity Do You Need?

You want to have enough equity in your home to make this option worth your time. You want it to match the amount of money you need to pay off your debts. Plus, you need enough equity to qualify for this type of loan.

So, how much is that? Well, lenders want you to have at least 20% of home equity. That means your home’s market value minus your current mortgage balance needs to equal at least 20% of your home’s value. Anything less can result in:

Higher interest rates
Higher fees
Mortgage insurance

Anything less than may also fail to cover the multiple debts you’re trying to pay off.

How to Determine if This is a Good Option

Learning how to roll credit card debt into a mortgage can help you figure out if this is a viable option you want to explore. Now that you know how it works, you can examine your financial situation a bit more closely to determine whether this option will best support your long-term financial future.

First, understand the cause of overspending – Refinancing can help an expensive bill but it won’t help extensive spending. If your credit card debt needs help due to a heavy one-time expense such as a medical bill or other emergency spending, refinancing may be the right fit. However, if your credit card bill is a symptom of living outside of your means, using your mortgage to ease your credit card debt won’t fix the overarching issue.
Review your credit – Remember, mortgage lenders are secure loan lenders, so they want to see proof of your reliability as a borrower. The first place they’ll look to evaluate your candidacy? Your credit score. The higher the score, the lower your interest rates will be.
Review your home’s value – Your home’s worth will determine how much you can expect to borrow, so look up your home’s market value.
Factor in additional costs – Depending on your situation, you may have to consider additional expenses to make this refinancing happen. For example, you may have to purchase mortgage insurance. You may also need to think about closing costs and the new monthly mortgage payments.

The best step you can take before starting this process is to review your other financial options. This will help solidify in your mind that you’re making the right choice.

Alternative Options to Consider for Paying Off Debt

Debt is a stressful situation that you may be more than eager to get out of. But, if you want to guarantee future stability, explore your options so you can find the solution that best suits your goals.

How do you know what is the right option for you without comparing it to others? Your other options include:

Home Equity Line of Credit (HELOC)
Home equity loan for debt consolidation
Personal loan
Balance transfer credit card

Still don’t see an option you can get behind? Then, you may be interested in an alternative approach that allows you to convert your equity to cash without putting your home up as collateral.

A Financial Solution: Sale-Leaseback Programs

You’ve built up that equity in your home and have every right to use that money to ease credit card debt. But, it shouldn’t come at the risk of losing everything you’ve built.

A sale-leaseback can potentially be your financial solution to debt. Sale-leaseback programs allow you to sell your home, convert your equity to cash to pay off debt, and lease back your home until you’d like to move or buy it back.

Key Takeaways

While you can roll credit card debt into your mortgage payment, this option comes with risks that may cause more harm than good if you’re unaware of them. Consider alternative financial solutions like a sale-leaseback, HELOC, HEL, and more, but be sure to consult a financial advisor if you’re looking for advice about your specific situation.

Sources:

InCharge. How Much Debt is Too Much? https://www.incharge.org/debt-relief/how-much-debt-is-too-much/

Investopedia. Unsecured vs Secured Debts: What’s the Difference? https://www.investopedia.com/ask/answers/110614/what-difference-between-secured-and-unsecured-debts.asp

Debt. Using Real Estate to Take Control of Your Debt. https://www.debt.org/real-estate/to-take-control-of-your-debt/

Money Management. Can Credit Card Debt Be Rolled in My Mortgage? https://www.moneymanagement.org/blog/can-credit-card-debt-be-rolled-into-my-mortgage