Debt Consolidation: Using Your Home Equity to Consolidate
Have you ever thought about consolidating all your debt into a single payment? When you consolidate debt, you use money from a new loan to pay off debts from other sources like credit cards and medical bills. Consolidating lets you make one payment to one lender, which makes bills easier to manage. A Cash-Out refinance mortgage allows you to pay off your existing mortgage as well as any other liabilities in your name and then establishes a new loan that you will make monthly payments toward. Let’s talk about what some of the main advantages are for refinancing all your debt against your home.
Consolidating debt allows you to pay less interest on dollars borrowed since mortgage interest rates are much lower than credit card interest rates or car loans and even personal loan interest rates. You also would be making payments toward an appreciating asset, that increases in value over the time you have ownership of it in comparison to depreciating assets such as cars. This means that the dollars in interest paid are helping you build wealth over time instead of money being lost to interest such as in a credit card payments or personal loans, where the interest being paid does not actually go toward any asset. We have helped clients save hundreds of dollars a month to thousands of dollars a month through consolidating their debt with the equity in their home.
A common question I receive when discussing debt consolidation through a Cash-Out refinance is, “How much equity do I need in my home in order to pay off my other debts?” The answer to this question is that you are allowed to borrow up to 80% of your homes appraised value on a Cash- Out refinance. Our market in Utah has experienced significant equity appreciation over the past few years and is estimated to continue to grow at a fast pace over the next few years. This means that equity in your house is building fast and you could already have enough equity to use it as leverage to pay off your other debts. You could also save money if the value of your home has increased enough that you no longer require mortgage insurance as part of your monthly payment.
Can you still receive cash back at closing even when consolidating other debts on a refinance? Yes. If there is sufficient equity in your home, you may elect to consolidate all your debts and take additional cash back at closing for any reason at all. You could put that additional money toward home improvements or even the family vacation you’ve always dreamt of but did not feel financially secure enough to afford.
Another common question I receive, is do you have to start the 30-year repayment process over when you do a Cash-Out Refinance. The answer to this question is no, although you can elect to start a new 30-year amortization period, you may also select 15-year or 20-year terms. Here at Utah Independent Mortgage, we even work with lenders who offer ‘Flex Terms’ which allow you to amortize the loan over a specific number of years. For example, if you are already 7 years into a home and don’t want to restart the 30-year mortgage financing, you could elect to financing your loan over 23 years. This would allow you to refinance and gain access to the equity in your home without causing you any delay in your process of owning the home out-right.
If you are interested in a cash-out refinance to consolidate your debt and would like a quote including a free home value estimate. Please reach out to our team today as we would love to help you leverage your asset to build your wealth and help you stop paying interest on liabilities that offer you no financial growth in return.
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Yes. A cash-out refinance may allow you to use a portion of your home equity to pay off debts such as credit cards, medical bills, car loans, and personal loans.
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A cash-out refinance replaces your existing mortgage with a new mortgage. The new loan can pay off your current mortgage and other selected debts, leaving you with a new monthly mortgage payment.
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The article explains that homeowners may be able to borrow up to 80% of their home’s appraised value. The amount available depends on the property value, current mortgage balance, loan program, and borrower qualifications.
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Yes, if sufficient equity is available. After the existing mortgage and selected debts are paid, the homeowner may be able to receive additional cash at closing.