Constantly paying off high interest rates on your credit cards, student loans, vehicle loans, or other types of debt can be overwhelming. If this harrowing situation has you got you considering refinancing a home to pay off debt, you’re not alone. Although this option is not right for every situation, it does help get many people out of debt. If you think refinancing a home to pay off debt could be the answer for you, talk to your Atlanta mortgage company and consider the following signs to know whether you’re on the right path to refinancing your way to a debt-free life:
Refinancing a Home to Pay Off Debt if You Have Equity
Before you even consider refinancing a home to pay off debt, you want to make sure that you have equity in the home. If the value of your home is more than you own on the mortgage, you have equity. When you consider refinancing a mortgage to consolidate debt, you’ll essentially end up borrowing more than you owe. That way, you can use part of the loan to pay off your existing mortgage and the rest of the money goes toward paying off your debt.
For example, imagine you’re refinancing a home to pay off debt and your home is worth $300,000. You owe $150,000 and you have about $50,000 in other debts. After you decide to refinance, you take out a loan for $200,000. Now you can use that money to pay off the old mortgage and your debts and you can then move forward paying off your new mortgage each month.
This leaves you with only one monthly payment to your mortgage company, and you don’t have to worry about juggling multiple debt payments.
You Have the Chance to Lower Your Interest Rates
Refinancing a home to pay off debt usually makes the most sense if you can lower your interest rates. If your interest rates are already incredibly low, refinancing may not make sense. To ensure you’re getting the best rate possible, shop around at different mortgage companies in GA.
You Can Afford the Mortgage Payments
Before you refinance a mortgage to consolidate debt, make sure that you can afford the new monthly payment. If you can’t afford to make credit card or student loan payments, you risk negative marks on your credit report, but if you roll those into your mortgage and can’t stay current with the payments, you risk losing your entire home. Always look closely at your finances before refinancing a home to pay off debt.
You Can Avoid Future Debts
People typically roll their debts into their mortgage because they want to save money or get out of debt faster. However, that plan can backfire if you start using your credit cards again or take out a bunch of new loans. Only consider refinancing a mortgage to consolidate debt if you can avoid going into debt in the future.
You’ve Explored Multiple Types of Loans with Your Atlanta Mortgage Company
If you’re thinking about refinancing a home to pay off debt, you have several different options. You can refinance your home as explained above, but you can also get a new loan that is backed up by the equity in your home. Sometimes called a second mortgage, this loan gets paid separately from your main mortgage. It can be a home equity line of credit (HELOC) or an installment loan, but in both cases, they are backed by your home equity.
At BrightPath, an Atlanta mortgage company, we can help you determine if refinancing a home to pay off debt is the right option for you while also giving you valuable insight into other loan options. Contact us today to set up an appointment so we can help you find your way to a debt-free future!