This could be the best way to pay off your holiday debt and reduce your housing costs
If you ended 2021 with a pile of holiday debt, you’re definitely in good company. It’s hard to limit spending during the holidays, and this year in particular there were fewer deals to close due to supply chain issues.
Of course, starting a new year with debt is not ideal. But if you’re a homeowner, there may be an easy way for you to eliminate your vacation debt and lower your mortgage payments at the same time.
Time for a new mortgage?
You may be familiar with the concept of mortgage refinancing. This is when you swap an existing home loan for a new one with more favorable terms.
When you do a cash-out refinance, you trade in your existing mortgage for a new one, only you borrow more than you owe on your existing home loan. You can then use that extra money for whatever purpose, whether it’s renovating or paying off that pesky vacation debt.
To qualify for a cash-out refinance, you need to have a decent amount of equity in your home. Equity refers to the part of your home that you fully own, and it’s calculated by taking the market value of your home and subtracting your mortgage balance.
These days, homeowners across the United States are sitting on record levels of equity due to high home values. Therefore, chances are you are in a strong position to qualify for a cash refinance. And if you don’t have too much holiday debt, you may be able to get money out of your home while lowering your mortgage payments at the same time.
Say you owe $200,000 on your mortgage and your house is worth $300,000. Let’s also assume that you owe $10,000 in vacation debt. You could easily qualify for a $210,000 cash refinance depending on the value of your home.
Now let’s say you’re paying 4.5% interest on your $200,000 mortgage and you have a 30-year loan. This means you pay $1,013 per month for principal and interest. If you were to refinance $210,000 but reduced your interest rate to 3.6% on a new 30-year loan, you would be left with a monthly payment of $955 for principal and interest. During this time, you’ll also walk away with a check for $10,000 to pay off your vacation debt. You can use a mortgage calculator to find out how much you could save by refinancing.
Is cash-in refinancing right for you?
A cash refinance could be a good way to lower your monthly mortgage payments and get rid of recent debt. That said, you’ll be paying closing costs to swap your current mortgage for a new one, so you’ll want to check the numbers and make sure paying them makes sense.
If you think you could move in the short term, you may want to put off refinancing and find another way to eliminate your vacation debt. But if you have every intention of staying put, a cash-out refinance could be a great solution for you.
A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage
Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.
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