Refinancing to pay off debt

This article is catered towards current home owners that may be considering refinancing their mortgage in order to free up some money to pay off  high-interest credit cards or line of credit debt.

Many find it advantageous refinancing their mortgage in order to pay off other higher interest loans. For example, why not borrow money at the current 5 year fixed interest rates (which are as low as 2.54%) instead of seven to eight percent (or higher!).

Pro’s

Why not take equity out of your home to pay off high-interest debt (credit cards, car loans, Line of Credit). And since interest rates are currently at a forty year low, switching to a lower rate may save you a lot of money. Refinancing your first mortgage and taking some existing equity out could also enable you to make investments, go on vacation, do some renovations or even invest in your children’s education.

Con’s

Please keep in mind that if you are in the middle of your term, their will be a penalty that needs to be paid to restructure your mortgage, and withdraw new money. Luckily the penalty can be offset by the extra money you acquire through refinancing. Also note that by refinancing you may extend the time it takes to pay off your mortgage. That said, there are many ways to pay down your mortgage quicker to save thousands of dollars. Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This will reduce your amortization period (the length of your mortgage), which, in turn, saves you money.

At time of Renewal

If homeowners do not take the time to thoroughly examine their options with a mortgage professional and, instead, sign the renewal package received from their bank, credit union or other lender, they may end up paying thousands of dollars more per year in interest. Simply by shopping your mortgage with a qualified mortgage professional, you can access the banks and other lenders products that you may not have considered, but which will often offer interest rate specials or other attractive terms.

Conclusion

By refinancing now and paying off your debt, you can put yourself and your family in a better financial position. Do not rack up your credit cards after refinancing, set goals/budgets, and stick to them!

Let me know if you have any questions. Have a great day!