For those facing significant financial hardship and considering the various options to address one’s debt situation, it is important to understand the differences between a debt consolidation loan and home loan refinancing. There are pros and cons to each choice, and no prohibition against pursuing both; knowing the potential ramifications of each, however, is very important to protecting oneself in the future. As with most things, educating oneself about the details of a financial decision one is considering is highly advisable.
The first thing that is important to know about the differences between a debt consolidation loan and home loan refinancing is that the collateral structure is very different. While the former may be unsecured or secured by a personal guarantee, a home loan refinancing is secured by the collateral of one’s home. What this means is that if you default on the loan, you can lose your home, even in the case of a bankruptcy. Pulling money out of one’s home by refinancing your mortgage and taking out a certain amount of cash to be used for bills or debt reduction may seem appealing, but it can lead to a dangerous situation where one’s home itself is at stake. The refinancing terms should be carefully considered because of what this type of loan uses as collateral.
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