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Refinance Your Mortgage
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Re-Establish Your Budget by Consolidating Your Debt
Do you feel your monthly budget tightening up? This can be due to many different things like credit card debt, a rising mortgage payment, or even a pay decrease or job loss. If you have built equity in your home there may be an option to help loosen up that budget and allow some room to breathe.
Do you feel your monthly budget tightening up? This can be due to many different things like credit card debt, a rising mortgage payment, or even a pay decrease or job loss. If you have built equity in your home there may be an option to help loosen up that budget and allow some room to breathe.
Why Choose a Cash Out Refinance
The purpose of a cash out refinance is to payoff your existing mortgage and borrow a set amount of money against the remaining equity left in the home. It's less risky loan when compared to a 2nd mortgage like a home equity line of credit. Because of the reduced risk, the interest rates on cash out refinances are typically lower than those on 2nd mortgages. Also with a cash out refinance you can lock into a fixed rate mortgage where with most home equity lines of credit, the interest rates are adjustable. There may be more costs with a cash out refinance but you will almost always make them up with the lower monthly payment.
The purpose of a cash out refinance is to payoff your existing mortgage and borrow a set amount of money against the remaining equity left in the home. It's less risky loan when compared to a 2nd mortgage like a home equity line of credit. Because of the reduced risk, the interest rates on cash out refinances are typically lower than those on 2nd mortgages. Also with a cash out refinance you can lock into a fixed rate mortgage where with most home equity lines of credit, the interest rates are adjustable. There may be more costs with a cash out refinance but you will almost always make them up with the lower monthly payment.
How a Cash Out Refinance Works
Let's take a look at a scenario and see the savings that you could benefit from by doing a cash out refinance.
Let's assume you have a home valued at $150,000. Your current mortgage is for $100,000. This means that you have $50,000 of equity in your home.
Lets say that when you bought your home your initial mortgage was for $125,000 at 6.00% for 30 years, resulting in a $749.44 monthly principal and interest payment. Now let's say that you have three credit cards with a balance of $5,000 on each one, and the minimum monthly payment is $125. This means that you have $15,000 in outstanding credit card debt and a minimum monthly payment of $375 for the three cards. Not to mention that just by paying the minimum monthly payments on your credit cards barely reduces any of the balance.
So far we have a monthly principal and interest mortgage payment of $749.44 and an additional $375 going to the credit card companies for a total of $1,124.44.
Now let's work some magic and find how much you can save by doing the cash out refinance. We will take the $100,000 that you owe and add the $15,000 in credit card debt for a new total of $115,000. That is what your new mortgage amount will be. We will set you up on a new 30 year fixed rate mortgage at 5.25%. The interest rate may be higher or lower depending on your current situation and what the market provides. So your new monthly principal and interest payment will be $635.03. You went from paying $1,124.44 a month in bills to consolidating them down to a payment of only $635.03. That is a difference of $489.41 a month.
Now one concern you may be thinking about is the fact that you had paid on your old mortgage for the last 10 years and only had 20 years left to pay it off. Let's see what taking you down to a 15 year term will do. If we take $115,000 balance at a fixed rate of 5% for 15 years your new principal and interest payment is $909.41. That is still a difference of $215.03 dollars a month and you even shortened your term by another 5 years.
Let's take a look at a scenario and see the savings that you could benefit from by doing a cash out refinance.
Let's assume you have a home valued at $150,000. Your current mortgage is for $100,000. This means that you have $50,000 of equity in your home.
Lets say that when you bought your home your initial mortgage was for $125,000 at 6.00% for 30 years, resulting in a $749.44 monthly principal and interest payment. Now let's say that you have three credit cards with a balance of $5,000 on each one, and the minimum monthly payment is $125. This means that you have $15,000 in outstanding credit card debt and a minimum monthly payment of $375 for the three cards. Not to mention that just by paying the minimum monthly payments on your credit cards barely reduces any of the balance.
So far we have a monthly principal and interest mortgage payment of $749.44 and an additional $375 going to the credit card companies for a total of $1,124.44.
Now let's work some magic and find how much you can save by doing the cash out refinance. We will take the $100,000 that you owe and add the $15,000 in credit card debt for a new total of $115,000. That is what your new mortgage amount will be. We will set you up on a new 30 year fixed rate mortgage at 5.25%. The interest rate may be higher or lower depending on your current situation and what the market provides. So your new monthly principal and interest payment will be $635.03. You went from paying $1,124.44 a month in bills to consolidating them down to a payment of only $635.03. That is a difference of $489.41 a month.
Now one concern you may be thinking about is the fact that you had paid on your old mortgage for the last 10 years and only had 20 years left to pay it off. Let's see what taking you down to a 15 year term will do. If we take $115,000 balance at a fixed rate of 5% for 15 years your new principal and interest payment is $909.41. That is still a difference of $215.03 dollars a month and you even shortened your term by another 5 years.
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