If you are looking to pay off your debt, you can use your home’s equity and get that cash you need. How? Through cash-out refinance.
One of the most common problems of most households in America is debt. This is especially the case for those who have credit card debt, auto loans, student loans, and mortgages.
The average US household has around $15,000 credit card debt. A lot of cardholders usually pay higher interest rates for higher balances.
If you have significant debt, the monthly payment may seem never ending especially those high-interest balances. One way to help ease your situation is by refinancing your mortgage.
Take Advantage of Low Mortgage Rates
By now, you might have already noticed the low mortgage rates for the past years. In 2012, the 30-year mortgage rate was at 3.31% while in 2016, this number slightly increased to 3.71%.
Homeowners who want to decrease their monthly mortgage payment can use Cash Out Refinance Dallas to lower the rate. Not only that but you can also use this to remove your high-interest credit card debt.
The average credit card interest rate is at 13.66% while the average 30-year mortgage rate is at 3.71%, that’s about a 10 percent difference. How come? This is all because mortgage debts are seen to be less risky than credit card debts. Not only that but credit card companies charge their interests accordingly.
Just think about this, if you transfer a 13.66% debt to a 3.71% automobile, you are saving as much as 10% return.
So how do you do this? Get a cash-out to refinance. It will turn your home’s equity into money that you can use for anything you like. A lot of people pay off their high-interest debt, finance their home improvement projects, or fund a large purchase using the money they get.
Compared to paying a revolving balance monthly, people use their cash-out refinance to consolidate credit card debt since they can make fixed payments.
How To Do Cash-Out Refinance The Right Way
If you are thinking of doing a cash-out refinance, ensure that you have enough equity so that you don’t get a more than 80% loan-to-value ratio after the refinance. If you exceed this ratio, you might need to buy private mortgage insurance which is a bit expensive.
Cons Of Cash-Out Refinance
When you do a cash-out refinance, you are growing your mortgage balance with the credit card debt you plan on paying. As a result, your monthly mortgage payment might increase depending on the interest rate and terms you are qualifying for.
It is also best that you consider your mortgage length. Check if you have already paid a few years off, so you are not required to extend another 30 years. Consider lowering the number of years to 20 or 25 years. The shorter the number of years, the lower the mortgage rate will be. This will help you save money in the future but might lead to a higher monthly mortgage payment.