Refinancing a mortgage can not only help you pay for the purchase of your home but also for the payment of your personal debts. There are two forms of refinancing that can suit you, depending on your needs. But in any one it will allow you to have more money to be able to pay off your financial pending credit cards or other personal loans.
According to data from Experian, American households have an average of $97,727 in personal debt. The most common type of mortgage refinancing will allow you to save money on interest, which can lead to the payment of your debts. Although there is also refinancing with cash withdrawal.
Remember that in any case, refinancing a mortgage means canceling the loan you currently have for a new one, that is, you are going to pay a new mortgage throughout the time you have refinanced it.
Refinancing of a rate and term mortgage
This method is the most common and recommended for homeowners who qualify for a lower interest rate and have low debt balances. A rate and term refinancing allows you to obtain a mortgage with a new loan term, a new interest rate, or both.
With a lower rate, you save on your monthly payments, which allows you to have extra money to pay the rest of your debts. For example, if you had $5,000 debt on a credit card and you have a mortgage balance of $200,000 with an APR of 5% and a monthly payment of $1,690, when you refinance for a new 30-year loan with a rate of 3 %, your monthly payments would be $1,240. The remaining $450 would allow you to pay off your card debt in one year, if it had an APR of approximately 18%.
Mortgage refinancing with cash withdrawal
If you are a homeowner with a high interest rate, sufficient home equity, and a large amount of debt, then this may be the best option for you, as you may have cash on your hands.
When you do a cash-out refinance, you get a new home loan for more than you owe, pay off the original mortgage, and pocket the difference in cash. This extra money, which can be a few thousand dollars, can help you finish your other debts sooner than you thought.
To apply for a refinance of this type, it is necessary that you have enough equity in the home, that is, that you have already paid a large part of the value of your house, in addition to meeting other requirements that will depend on the lender.
For example, if you have a mortgage balance of $200,000, but this time you also have $10,000 in credit card debt. With a cash-out refinance, you could receive a new mortgage for $210,000 and with that pay off the $10,000 you owe.
Although these are excellent mortgage refinancing options to be able to pay off your debts, take into account that the decision to do so involves more other aspects of your mortgage loan, such as how long you have been paying it and the period in which you plan to live in the property to really get liquid value from it.
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