Mortgage rates are at historic lows. With fixed interest rates hovering around 3%, now is a fantastic time to use the equity in your home to consolidate debt and save money every month. Homeowners with auto loans, personal loans, and credit card debt can save a significant amount of money by converting their debt into a home refinance.
If you own a $400,000 home and owe $220,000, you have $180,000 in equity. This equity can be used to consolidate debt.
How much you could save
Mortgage loan: $220,000 with a monthly payment of $1,798
Visa Card: $13,000 with a monthly payment of $398
Master Card: $9,700 with a monthly payment of $307
Car loan: $18,000 with a monthly payment of $405
Personal Loan: $16,000 with a monthly payment of $330
total debt: $276,700
Total Payments: $3,238
If you took out all that debt and refinanced it into a 30-year fixed rate mortgage at 3.5%, the monthly payment would only be $1,242. A $2,000 savings is monumental. Some of the savings come from lowering the overall interest rate and extending the time it takes to pay off your credit card and car loan debt. For example, a car loan typically has a term of seven years or less. When you combine that balance with other debt into a 30-year mortgage, you extend the number of years you have to pay off that debt.
Debt consolidation through a payout refinance is another way to put you in control of your monthly budget and free up cash flow for additional spending. For people facing a drop in income, unexpected medical bills, or just want more play money, this is an ideal solution.
Refinancing and consolidating your debt can also help you pay off your home loan sooner. If the above borrower could continue paying $3,238 in debt each month, he would put the additional $2,000 each month directly on the principal of the loan. At this rate, the loan could be fully paid off in just over 8 years! This is amazing for people who want to be debt free. It’s not as hard as it sounds. You can easily be debt free with this plan if you stick to a monthly plan where you take all your savings and use them for capital. This still leaves flexibility for borrowers because if an unexpected bill comes along, you can keep the savings that month. Refinancing puts you in the driver’s seat. If you don’t consolidate your debt, you remain tied to payment schedules and schedules set by creditors.
Refinancing rates are low, so contact a mortgage banker today to discuss your loan options. There are various refinancing programs that can help you save money. Whether it’s debt consolidation or just reducing your interest rate, the savings can free up cash flow on a monthly basis and give you the opportunity to pay off your home loan sooner.