The age-old question of whether to refinance your mortgage to help you pay off other debts is not just relevant in 2021 — it may be your most important financial question of the year.
Benton Capital Mortgage Lending is making homeowners aware that with today’s historically low interest rates, they can leverage their most important financial asset to their advantage. Here’s why — and how:
- You can get rid of one debt or multiple debts. A traditional mortgage refinance or a cash-out refinance can help you “snowball” your other debts, whether you use the extra money to pay them down or pay them off completely. Debt with much highest interest rates could be your focus, including credit cards, retail merchandise financing, personal loans, medical debt, education or school debt, and even auto loans.
- How can you accomplish this? With a traditional refinance or a cash-out refinance. Let’s talk about a traditional refinance first. By borrowing money at a lower interest rate over approximately the same amount of years (give or take) that you still owe on your existing mortgage, you can save some serious money every month. Then you can transfer these savings into paying off other debt with higher interest rates, or at least paying down debt to a lower level. Simultaneously, you might even be able to reduce or eliminate your Private Mortgage Insurance (PMI) assuming your current mortgage is a certain type of government-program loan (FHA, VA, or USDA) and you’ve gained some home equity.
- But… a cash-out refinance would instantaneously hand you the money you want. Homeowners usually net thousands or tens of thousands of dollars in a cash-out refinance. You will need a fair amount of equity to make sure your loan-to-value ratio (LTV) stays where you want it. Having below 80 percent LTV (more than 20 percent home equity remaining) is usually optimal, although this may not be needed depending on your circumstance. Be decisive about picking a cash-out refinance over a traditional refinance. Make sure you are willing to stick to your plan and use the extra money to pay off other debts.
- Make sure paying off other debts is the right thing to do in your situation. Sometimes using extra money from a mortgage refinance to get rid of other debt isn’t the best choice compared to purchasing a much-needed item for your household, paying for education/school expenses, building up your emergency fund, or affording an essential home repair project.
- Refinancing means dissolving your existing mortgage and entering into a new mortgage, which means you need get pre-approved. Be ready to fill out some paperwork and discuss your financial situation. If needed, be open and willing to work on raising your credit score (FICO score) and lowering your debit-to-income ratio (DTI). Chances are, you’re FICO and DTI are probably in good shape since you’ve been a reliable-paying homeowner for many months or years.
- A mortgage refinance means you pay closing costs on a newly originated mortgage. Oftentimes these can be incorporated into your new mortgage amount and monthly payment. Make sure you understand the exact details before moving forward. It will all make financial sense if the closing costs are much less compared to the money you’ll save and transfer into paying down other debts.
Remember, there’s a difference between using your mortgage refinance as a tool for paying off a debt versus paying it down to a lower level. Choose what’s right for YOU.
Benton Capital Mortgage Lending can assess your situation and get you on the road to a highly competitive, low-priced mortgage refinance — whether it’s a traditional or cash-out refinance! Visit Benton Capital Mortgage Lending to start a mortgage application. Also, text an image of your current monthly mortgage statement to 719-331-5443 and owner Mike Benton will tell you HOW MUCH money you could save each month.