Refinancing for Medical Debt

• To use refinancing to pay off medical debt, you must take out a refinance loan for more than the remaining principal balance of the mortgage. This requires you to have sufficient equity in your home to obtain a "cash-out" refinance. When you take out this new mortgage on your home, you use part of the money to pay off the existing mortgage loan. Any money left over after paying off the first mortgage can be used to pay off your medical bills. This eliminates the need to make multiple medical bill payments every month, and you can focus only on paying your mortgage.
  
  

Advantages

• The main advantage of refinancing your home to pay off medical debt is that it may provide you with an affordable interest rate and monthly payment. Plus it rids you of your medical debts. Most mortgages are 30-year mortgages, which means you can spread the debt payments over 30 years at an interest rate that often is less than what you would pay with credit cards. Another advantage is that you can consolidate all your bills into a single monthly payment.
  
  

Drawbacks

• Refinancing your home to pay off medical bills comes with some drawbacks as well. With this strategy, you may end up paying more for the debt over the life of your mortgage, because you are financing it for 30 years with interest. In addition, you are taking a debt that was previously unsecured (the medial debt has no collateral backing it) and attaching it to your home. If you cannot afford to make your mortgage payment, you could lose your house. Inclusion of the cash-out to pay the medical debt conceivably could increase the refinance payments enough to make them problematic. You must also consider the closing costs involved with refinancing your home. These costs could be more than the amount of your medical bills.
  
  

Importance of Paying Medical Bills

• When you receive medical bills, it may not seem important to pay off the bills immediately. Interest usually is not charged on medical bills, and you can avoid paying them for a while. However, that can lead to serious problems. A medical provider may file a lawsuit against you if you do not pay your bill in a reasonable amount of time. This could lead to a court judgment against you, which can be used to garnish your wages or place a lien on your property.