Can You Really Save Money by Adding Your Debts to Your Mortgage?
When it comes to managing debt, most people don’t realize their mortgage can be a powerful tool. You may have heard our ad about refinancing — but how does it actually help you pay off debt faster by adding it to your mortgage? Here’s a real client example that breaks down how it works.
Meet Client A:
They were 2 months away from renewing their mortgage. Right now, they have a low covid interest rate of 1.99% and 20 years left to pay.
What They Owe Right Now:
- Mortgage: $286,274
Payment: $1,445.75/month - Credit Cards & Loans (totalling $49,898):
- $12,263 at 21% interest → $367.89/month
- $19,889 at 11% interest → $596.67/month
- $9,820 at 10% interest (interest-only) → $81.83/month
- $7,926 at 19% interest → $237.78/month
Total Debt Payments: $1,284.17/month
➡️ Total Monthly Payments (Mortgage + Debts): $2,729.92/month
What Happens if They Don’t Refinance?
If they keep making only the minimum payments for 5 years, here’s where they’ll be:
- They’ll still owe about $24,339 on their credit cards and loans
- Mortgage (at 4.24% renewal rate): they’ll owe $235,436
- ➡️ Total Owing After 5 Years: $259,775
- ➡️ Total Monthly Payment: around $3,050/month
What Happens if They Do Refinance?
We added the $49,898 of debt into their new mortgage. The new mortgage is:
$336,172 at 4.24%
🔹 Option 1: Save Money Each Month
- New mortgage payment: $2,324.59/month
- Still owe the same after 5 years as if they didn’t refinance – $235,436, with 15 years left on the amortization
- ➡️ Savings: $725/month × 60 months = $43,507 saved!
Why this works: They make smaller monthly payments and still owe the same in 5 years.
🔹 Option 2: Pay Off More Debt Faster
- Keep payments similar (to not refinancing): about $3,042/month
- New amortization: 11 years and 8 months – by keeping the mortgage payments at $3,042 per month it decreases the amortization
- After 5 years, they owe only $211,916 on the mortgage
➡️ They pay off nearly $47,858 more than if they didn’t refinance!
Why this works: They don’t change their payment amount, but now all that money goes toward debt faster.
🔹 Option 3: Lower Payments
Maybe one partner lost a job and they need to lower monthly costs.
- Stretch the mortgage to 30 years amortization
- New payment: $1,644.53/month
- Saves $1,405/month compared to before
→ Over 5 years, they save $84,310 in payments
BUT:
- They will owe $305,045 after 5 years
- That’s $45,319 more than in Option 1
Why this works: It gives short-term relief. Later, they can increase payments again to catch up if they choose.
Refinancing isn’t just about rates — it’s about your whole financial picture. Whether you’re looking to save monthly, get debt-free faster, or just need temporary relief, we can help you make the right call. Want to see what refinancing could look like for you? Contact The Collin Bruce Mortgage Team today — we’ll do the math!
