Home Equity Can Provide Debt Relief Options
While we all do our best to be fiscally responsible and smart money managers, it isn’t always easy. Unforeseen circumstances such as the current pandemic and life situations including divorce, illness or job loss, may require us to take out a personal loan or put more money on a credit card than we can pay down comfortably.
High-interest debt can be especially challenging to manage because so much of your payment goes toward the interest, rather than the principal (the original amount you borrowed).
The good news is, if you have equity built up in your home, tapping into it through a mortgage refinance can provide a fresh start by lowering debt, increasing cashflow, decreasing monthly payments Often save you thousands in interest. Mortgage rates are hovering at historic lows, which also presents a great time to take advantage of a refinance.
How does debt consolidation work?
When refinancing your mortgage, you can typically borrow up to 80% of your home’s value. It’s important to note, however, that there maybe a fee associated with breaking your mortgage early. Whether this move makes good financial sense for you depends on a number of factors, including, interest rate, mortgage product and how far you are into your current mortgage term. With a fixed rate mortgage The longer you have left on your term, the larger your prepayment penalty will be.
If your mortgage is nearing renewal, now’s the perfect time to consolidate debt at no extra charge for breaking your mortgage early.
It may still be more cost-effective, however, to break your current mortgage mid-term as opposed to waiting until renewal in order to combine your high cost non-mortgage debt into a lower cost new mortgage.
Our mortgage team will weigh your options by considering any penalty you may face to break your current mortgage compared to how much the ongoing high-interest debt burden will cost you until your mortgage term comes up for renewal. You also want to ensure your credit doesn’t take a hit by letting your debt continue building or becoming unmanageable.
Wondering if a mortgage refinance is the right solution for you? Let’s talk. Answers are a call or email away.