Everyone knows how stressful life can be once you’re consumed with debt. You may have cut every possible extra expense but still find yourself struggling. The frustration of this situation can deeply affect your health and relationships. While getting into debt is a scary situation, having the ability to refinance your home to pay off debt can be a lifesaver.
Should You Refinance Your Home to Pay Off Debt?
One of the first aspects of qualifying for a refinancing loan is whether or not you have built up enough equity in your home. “Equity” means that you owe less than the value of your home. So, if you started with a $200,000 mortgage, paid $100,000 of that over the past few years, and then your last assessment valued your home at $150,000 you could take a cash-out refinance loan. A cash-out refinance loan allows you to pay the balance of your existing mortgage and use the remainder to put toward your debt. This means you would only need to make monthly payments on your refinance loan.
Other important notes to take into consideration before you refinance your home to pay off debt include:
You Can Afford the Mortgage Payments
Before you refinance your home to pay off debt, make sure you’re able to easily pay off the new monthly mortgage payment. Not being able to pay off your credit card or student loan payments leave negative marks on your credit. If you add these loans into your mortgage and you can’t make the payments, you risk losing your home.
You Can Lower Your Interest Rates
One of the best reasons to refinance your home is the lower interest rate on mortgages compared to credit cards and other installment loans. The typical annual rate on a credit card is 18% but can jump up close to 30% if you make a late payment. A mortgage refinance loan on the other hand usually has an interest rate in the single digits which can save you a considerable amount of money. The reduced fees and single payment help you get out of debt much faster and even avoid bankruptcy.
You’ve Explored Several Types of Loans
It’s always crucial to look at the different types of loans available, even for refinancing. If you want to refinance your home to pay off debt, you have a few good options. You can always refinance your home as explained here, or you can get a new loan that is backed up by the equity in your home. This is sometimes called a second mortgage and is paid separately from your main mortgage. A second mortgage can be a home equity line of credit or an installment loan, but either way, they’re backed by your home equity.
At BrightPath, we want to see you get out of debt, so we offer several options to refinance your home. Contact us today to learn more about how you can refinance your home to pay off debt the right way.