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Can I Borrow Extra?

As part of the mortgage process, many consumers borrow more than the actual cost of the home purchase in order to consolidate debt, pay for closing costs or just to have a little extra cash.

Below are some things to consider if you want to borrow more.

Consolidating Debt

If you have 2-3 different loans, such as credit cards or personal loans, you can consolidate all these into your mortgage by refinancing – assuming you have that much value in your home. By combining you will lower your monthly installment payment and have fewer bills each month. Just be sure you are diligent to not fall into the same spending patterns, or you will have wasted the refinance fees, lost equity in your house and possibly added years to your mortgage for no reason.

Financing Closing Costs

There are a few things to consider when you roll the cost of your refinance into your mortgage. Be sure it does not exceed 80% loan to value. If it does, Private Mortgage Insurance (PMI) will have to be added to your monthly payment, decreasing the amount of your monthly savings. Also, adding closing costs to your loan amount reduces the overall savings you gain from refinancing and you should consider the amount of time it will take you to recoup those costs. However, assuming you’ll be in your home for a while, the difference in the payment is usually very small and many people prefer to keep a few thousand in their pockets as opposed to paying it out.

Taking Cash Out

Consider what you plan to use the money for. If it’s for something long-term, say improvements to your home that will increase its value or college education, it might be worth adding that additional amount to your loan. If you plan to spend the money on a vacation or a car, consider you’ll be paying on that item for 15 or 30 years depending upon the term of your mortgage. That car might be in the junkyard before it’s actually paid for.

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MaryAnn George