How To Refinance a Home For Lower Payments?
Aug 26, 2022
If you have high-interest credit card debt, then refinancing your home may be a great idea. For many people, the interest on their non-mortgage debt is so high that it becomes difficult to make any progress in paying them off.
Read on to find out more about how refinancing your mortgage can help consolidate your debts and reduce monthly payments!
Types of Debt
There are two main types of debt, secured and unsecured debt.
Secured debt is the most common type of debt, and it involves borrowing money to buy things that have value.
The borrower gives something to the lender in return for borrowing their money, like a house – much like mortgages.
Unsecured debts are those without collateral backing them up, such as credit cards, student loans, and car loans. These types of loans typically have a high-interest rate tied to them and in return, borrowers make low monthly payments over a long period of time, which puts borrowers' creditworthiness at risk.
The Impact of High-Interest Debt on Creditworthiness
High-interest debt has a negative impact on credit scores because it is seen as risky. This can make finding loans and mortgages more difficult, or even prevent you from qualifying for certain types of debts like student loans.
Using Refinance to Consolidate Debt
Having a lot of high-interest debt can quickly become overwhelming. The best road out of this would be through debt consolidation. This involves paying off all your debt with one lower-interest loan to save on interest payments.
Homeowners looking to consolidate debt often use a cash-out refinance. This involves taking out a new home loan worth more than your current mortgage balance. The excess mortgage amount is cashed out at closing.
You use the cash-out funds to pay off all of your high-interest debt, leaving just one remaining mortgage balance. In this way, you are feasibly paying off expensive debts using a lower-interest mortgage loan at a monthly amount that is much more manageable.
The money you take from a cash-out refinance can also be used to pay off other obligations such as student loans and medical bills, but if you want to speed up your journey towards becoming free from debt, prioritizing high-interest debts is key.
A home is often the most valuable asset a person owns, and so it makes sense that many people would want to take advantage of this by refinancing their mortgage. If you’re looking for ways to consolidate high-interest debt into one monthly payment at a lower interest rate, then consider using your home as collateral for a refinance loan.
We can help you find out how much equity you have in your house to see if there are any other benefits available such as tax deductions before making the decision on whether or not to refinance. Interested in uncovering your options? Call us today!