November 22, 2004, Revised July 18, 2007, September 4, 2007, February 25, 2011 Before the financial crisis, it was possible for some home buyers to consolidate short-term debt into their purchase mortgage, usually to reduce their payments, often making themselves poorer in the process.
The consolidation increases the loan from $90,000 to $95,000, and the ratio of loan to value from 90% to 95%.
If a 95% loan-to-value ratio remains within the lenders underwriting requirements, the consolidation will work, but if 90% is the maximum allowable ratio, it won't.
That a consolidation is possible does not mean that it is profitable; in most cases it isn't, because the increase in loan-to-value ratio raises the cost, though appearances can be deceiving.
Consolidating credit card debts in a new purchase mortgage may lower total payments, but in most cases it will make the purchaser poorer. "I have $30,000 in cash for a down payment on the $300,000 house I am purchasing.
However, the increase in loan size from $270,000 to $285,000 increases either the mortgage insurance premium or the interest rate on the purchase mortgage.
It takes only a ¼% rate increase on 5,000 to offset the savings from a 6% rate reduction (including the shift to deductibility) on ,000 of credit card debt.Consolidation reduces the total monthly payment in this case mainly because of lower debt repayment.I also have ,000 of credit card debt at 12% that I would love to get rid of.The loan officer says I can roll it into a new 5,000 30-year mortgage at 6%.This cuts the rate on my credit card debt in half and makes it deductible.Further, my total monthly payment would be only 91, compared to 51 if I didn’t consolidate and took a 0,000 loan. " Consolidation looks attractive in this case because the rate on the mortgage is well below the rate on the credit card debt, and mortgage interest is tax deductible as well.