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Debt consolidation in a new purchase mortgage

Consider the long-term before lowering monthly payments
Published on Dec 13, 2004

"I have $30,000 in cash for a down payment on the $300,000 house I am purchasing. I also have $15,000 of credit card debt at 12 percent that I would love to get rid of. The loan officer says I can roll it into a new $285,000 30-year mortgage at 6 percent. This cuts the rate on my credit card debt in half and makes it deductible. Further, my total monthly payment would be only $1891, compared to $2051 if I didn't consolidate and took a $270,000 loan. Is there any reason I shouldn't consolidate?" Yes, appearances to the contrary notwithstanding, this consolidation will make you poorer. True, the rate on the mortgage is well below the rate on your credit card debt, and mortgage interest is tax deductible as well. However, if you increase the size of your loan from $270,000 to $285,000, you will increase either the mortgage insurance premium or the interest rate on the purchase mortgage. It takes only a 1/4 percent rate increase on $285,000 to offset the savings from a 6 percent rate r...

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