Since the onset of the COVID-19 pandemic, debt has become a significant issue for many Americans. This includes credit card debt, home mortgages, medical expenses, student loans, and vehicle loans. While it may seem that there’s no relief in sight from these high interest balances, there are certain steps that can be taken to eliminate some or all of your debt. For homeowners, one option is debt consolidation and lowering your monthly bills with a mortgage refinancing loan.
Why a Cash-Out Refinance?
Mortgages typically come with lower interest rates than other forms of debt. One method to consider is a cash-out refinance. This will allow you to turn your home equity into cash that can be used to consolidate credit card debt as well as the other types of debt mentioned above. Rather than paying a revolving balance each month, you can make fixed payments over a certain amount of time. Many individuals will pay off their high-interest debt while others will finance a home renovation or remodeling project or fund a large purchase such as a vacation home or vehicle.
Consider the Resulting LTV Or Loan-To-Value Ratio
If you’re thinking about cash-out refinancing, make sure that you have sufficient home equity so that the cash you’re taking out doesn’t leave you with a Loan-to-Value ratio or LTV that exceeds 80% after refinancing. Otherwise, you’ll be required to purchase PMI or private mortgage insurance and that could easily cost you an additional 1% of the total loan value annually. So, on a $250k mortgage that would equate to an annual charge of $2,500.
Your Mortgage Payment Could Increase
When choosing cash-out refinancing, your mortgage balance will increase by the debt amount you’re paying off. Depending on the mortgage term and interest rate that you qualify for, it may result in an increase in your monthly mortgage payment. So, use caution when considering the cash-out refinance route. Be sure you take the length of the mortgage into consideration as well. You might not want to extend it another 30 years if you’ve already made several years’ worth of payments. A shorter-term of 15, 20, or even 25 years would lower your rate and save you money.
Depending on your current financial situation, cash-out refinancing may or may not be right for you. However, we are here to assist you with your refinancing options and can assist you in making the right decisions. With years of experience in the mortgage industry, we have assisted thousands of homeowners.
To learn more about this, contact Florida State Mortgage Group, Inc. at (954) 359-3000 and speak with a mortgage lender today. Call us today and let’s find the best mortgage for your home.