Life can be incredibly stressful when you’ve accumulated a lot of debt. The frustration that comes from debt can become so bad it affects your relationships and even your health. Fortunately, by refinancing your home to pay off debt you can take steps toward building a brighter, happier future.
However, like any form of refinancing your mortgage, you want to make sure you know all the details so you can determine whether or not this decision is the right one for you.
How Much Can Refinancing Your Home to Pay Off Debt Save You?
One of the greatest benefits of refinancing your home to pay off debt is that you can pay less in interest. Mortgage loans typically come with lower interest rates compared to other types of loans, especially credit cards. When you refinance your home, you can pay off high-interest debt and convert that into a lower interest rate.
An annual rate on a credit card is around 18% but can reach as high as 30% if you factor in late payments. A mortgage refinance loan typically has an interest rate in the single digits which helps you get out of debt much more quickly.
How Much is Your Home Worth?
It’s crucial to know what your home is worth compared to what you owe on it. When being considered for a refinance, a lot of lenders will take a closer look at this. When it comes to getting a second mortgage, it can be more difficult to get a mortgage with less than 20% equity in your home. If your home is worth $100,000 and you still have $80,000 left to pay, this can be a challenge. It’s important to do your research and check realty prices and trends in your area before you decide whether refinancing is the right option for you.
Could You End Up in Debt Again?
Debt happens. But when you refinance your home to pay off debt, you want to make sure this isn’t a recurring problem. If you have a great track record of money management before you found yourself in debt, refinancing your home to pay off this debt might be for you. However, if debt is a recurring problem in your life, you want to be very careful.
Rolling your unsecured debt into your home puts your home on the line. You can also find yourself with a bigger mortgage payment and credit card debt on top of that. So, while refinancing your home to pay off debt can be very beneficial, you want to make sure this helps put an end to your debt and you won’t have a problem collecting more.
Consider All Your Loan Options
At BrightPath, a premier mortgage company in Georgia, we provide several options to help you refinance your home to pay off debt. The Federal Housing Administration (FHA) provides a popular loan as lenders are more likely to approve applicants since the loan comes backed by the FHA. A 15-year loan and a 30-year loan both offer different options depending on your goal. A 15-year loan can help you pay off your mortgage and debt as quickly as possible if you can afford a larger monthly payment while the 30-year loan is for those looking for smaller monthly payments, but with a longer time to pay. A longer loan does mean you end up paying more interest, so always keep that in mind.
Getting out of debt is important to your overall wellbeing, which is why we want to help you make the right steps to refinance your home to pay off debt.
Contact BrightPath today and we’ll help you learn the best options when it comes to refinancing your home and finally finding a bright, happier debt-free future!
