In the US, the average household handles many kinds of debts – mortgage, student loans, credit card debts, etc. On top of this, credit standing is shared among financial establishments for them to determine credit risks they may put up with. Higher credit card balances lead to higher rates for many cardholders and they are put in a position where interest can only get higher and higher.
A good solution here is to consolidate debts using every option available. For homeowners, this can mean refinancing a mortgage to lower interest and make room for other forms of debt.
Refinancing mortgage becomes an option when you have enough equity. Equity in your home is the current value of your home minus the mortgage balance you owe. This amount can then be used to refinance the mortgage for a low interest rate. If your home equity is large enough, you now have a good refinance option to gain an advantage over your other debts.
An important consideration before making this move is the age of your existing mortgage. This is because home loans amortize. Note that refinancing can mean going into debt once again. Having a loan approaching maturity can mean that the interest has already been paid off. The interest rate most impacts the start of a loan’s term; this means that refinancing becomes a better option when the mortgage is fairly new. Paying off interest in the longer term may mean paying more overall.
Whether it’s the short term cash you need or the long-term savings, a general benefit you can look for is the breakeven point. This is the specific month where the amount you save on monthly payments will finally match the cost for refinancing the loan. If you decide to sell your home, it would be best to do so after that breakeven month.
The low interest rates offered for refinancing average between 3 to 4%. Credit card interest rates average over 15% as of 2017. Although rates may vary from one lender to another, the huge difference between these two rates can give us an idea of the benefit. The difference between the two will then help you pay off credit card dues or cover other important debts.
As beneficial as these options are, the amount you can gain from refinancing is only limited to your existing home equity. To get a detailed picture of how much you can get from refinancing and tips on debt consolidation, consult your mortgage professional.
Refinancing can be advantageous for a good number of reasons. Maybe you are already convinced of the many benefits, and are now curious as to how to keep this good thing coming. Although there is no hard and fast rule on this, some states have ‘seasoning’ requirements. This means that you may have to wait a certain time before availing of cash-out refinancing or other refinancing options.
Are interest rates more favorable now versus when you first availed of your home loan? Do you intend to stay in your home for a long time? If so, refinancing once again can be a good option. Just make sure to check if your lender has any prepayment penalty because this can be a barrier to refinancing.
Several factors come into play when refinancing multiple times, and there may be no real disadvantage to this as long as you run the numbers first. You can maximize opportunities by consulting your local mortgage professional.
We would be more than happy to give advice on your specific needs. Feel free to contact us directly so we can get back to you with the best options right away.