refi | Trinity Oaks Mortgage

In’s and Out’s of Debt Consolidation Refinance

Rachel Webster — Tue, 11 May 2021 17:38:04 +0000

Should you refinance your mortgage to consolidate debt?

When you choose Debt Consolidation Refinance, it involves paying off high-interest debt for a loan with a lower interest rate. Consolidating debt allows you to save on interest payments in the long term. Costs can add up quickly if you owe a lot of high-interest debt, and it can become unbearable. For many, the apparent path is debt consolidation.

Currently, mortgage rates are at an all-time low, and a debt consolidation refinance could be a smart way to save money. Prior to making a decision on debt consolidation, it’s essential to realize all that is at play and learn these five benefits. It’s crucial to discern what’s involved with these strategies because securing high-interest debt against your home can be risky, so weigh all the pros and cons before determining.

How does debt consolidation work?

High-interest debt commonly originates from unsecured financing sources, like personal loans and credit cards. “Unsecured” means the lender contains no surety to regain losses if you run out on the debt. (Unlike a mortgage, which is “secured” by a tangible item; your home.) It’s easy to get in way over your head with many high-interest payments being sent to numerous lenders every month. Debt Consolidation Refinance is a straightforward way if you have predictable income and want to have affordable monthly payments.

The goal of a Debt Consolidation Refinance

The main goal of any debt consolidation strategy is to have more manageable monthly costs. For most homeowners, the lowest-cost source of money is their primary mortgage. Homeowners wanting to consolidate debt often use a cash-out refinance. Debt consolidation involves closing on a new home loan worth more than your current mortgage amount. The additional loan amount is cashed out at your closing.

Then, you use the cashed-out money to pay off your current high-interest debt, leaving you with one single debt to pay off: your mortgage. With this route, you’re conclusively paying off costly unsecured debts by means of a lower-interest mortgage loan. Funds received during a cash-out refinance can be used to pay off other significant obligations, like medical bills or student loans.

If your top goal is to become debt-free faster, then the highest-interest debts should take priority. The added benefit is that today’s mortgage interest rates are at near historic lows. So there’s a good chance you can lower your current mortgage rate and save on home loan interest as well as the interest on your other debts. Don’t forget that refinancing comes with closing costs, just like with your original mortgage.

Requirements of a Debt Consolidation Refinance

In order to consolidate debt using a mortgage refinance, you must qualify for the new loan. Requirements vary depending on your current loan type and the type of cash-out refinance you are applying for.

First, you will need enough equity to pay off the existing debts. You’ll typically need more than 20% equity to qualify for a debt consolidation mortgage. Most lenders want you to leave at least 20% of your home equity untouched when using a cash-out refinance. For instance, 30-40% equity is required to cash out 10-20% in cash.

You will additionally need to meet minimum credit score requirements. The most common type of refinancing is a conventional cash-out refinance, and it requires a credit score of at least 620.

FHA offers a cash-out refinancing program, which allows a lower FICO score of 600. Be aware that taking out a new FHA loan means you’ll pay for a mortgage insurance premium (MIP), including both an upfront fee and a monthly mortgage insurance fee. This increases the total cost of your new loan and digs into your savings margin.

A great option for qualified veterans and service members is to consolidate debt via a VA cash-out refinance. The VA cash-out loan allows you to refinance 100% of your home’s current value. Veterans might qualify even if they don’t have enough equity for a conventional cash-out loan.

Benefits of a Debt Consolidation Refinance

Debt consolidation can be a resourceful way to get out of debt faster. Learn more about the five benefits of using a debt consolidation refinance.

Benefit #1 – Pay only one bill every month

One of the more apparent benefits of consolidating debt with a refinance is having multiple payments lumped into one payment. This benefit is a great way to free up money monthly to save or invest in your future.

Benefit #2 – Lower your monthly payments

Debt consolidation is a way to make your month-to-month debt more affordable by paying off to reveal a lower interest rate. Lowering your monthly payments is a great way to

Benefit #3 – Improve your credit score

Consolidating your debt can also improve your credit score. It helps by lowering your “credit utilization ratio,” which is the percentage of your total credit limit that you’re using at any given time.

In general, the lower your utilization ratio, the better your FICO score.

Benefit #4 – Save money by reducing the interest paid on outstanding debt

The obvious benefit of a debt consolidation refinance is that you’ll save money by lowering the interest rate on your outstanding debts. This could save you a tremendous amount of money in the long run.

Benefit #5 – Lower your current mortgage rate to save on home loan interest

Another benefit in completing a debt consolidation refinance is to save on your original mortgage interest. By consolidating your mortgage and debts together in one, you save on interest in the long run.

Overall, a debt consolidation refinance is a smart way to pay down your debts at a much lower interest rate. But it requires a high level of discipline in making payments to avoid negative consequences.

Remember, you still owe the money

With a Debt Consolidation Refinance, you should exercise caution and be highly disciplined in your repayment. You could put your home at risk if you’re unable to make payments with your mortgage or home equity-backed loan. Loanees occasionally get into trouble because their previous credit lines are freed up when their debt is consolidated. It’s possible to rack up debt and get into trouble all over again. Remember, consolidating does not mean your debts have been “wiped clean.” They’re just being restructured to become more feasible. The ultimate goal is to stay debt-free; a refinance or loan is just a means to that end.

Next steps

Debt consolidation is a reasonable road to get out of debt for many borrowers. You will need to be aware of the possible risks in advance to avoid them and pay down your debt victoriously.

Pursue help to get your monthly spending habits under control
Make a higher-than-minimum payment on debts
Contemplate a zero-interest transfer or personal loan as another option

Have mortgage questions? Trinity Oaks Mortgage proudly serves the entire DFW Metroplex. Our experienced loan officers can answer any mortgage-related questions you have and guide you through the process.

We look forward to hearing from you!

The post In’s and Out’s of Debt Consolidation Refinance appeared first on Trinity Oaks Mortgage.

3 Eye-Opening Ways To Profit From Cash-out Refinancing Today – Even If You’re Not Money Savvy

Rachel Webster — Tue, 17 Nov 2020 18:22:07 +0000

If you aren’t sure what a mortgage cash-out refinance is or if it’s right for you, you’ve come to the right blog!

What’s a cash-out refinance?

A “cash-out refi” is when a current mortgage is replaced with a new mortgage of a higher value and the difference is given to you in cash. How much cash will you get? That depends on the amount of equity you have.

Equity is the difference between your home’s current market value and your mortgage balance. This value goes up as you pay off the principal you owe and/or when real estate economic factors improve to make your home’s value increase. More equity = more cash out.

Now that you know what a cash-out refinance is, let’s see if it applies to you!

Do I qualify for a Cash-out refinance?

First, ask yourself:

Have you built up some home equity?
Is your credit score above 620?
Are you currently employed?

If you answered yes to those simple questions, you very likely qualify. Let’s dig into what a cash-out refi is and how you can profit from it.

So how is cash-out refinancing profitable?

A cash-out refi is more profitable than a Home Equity Loan because…

It carries a lower interest rate and
You don’t take a second mortgage on top of your current mortgage. You replace your current mortgage with a new one, ideally with a lower interest rate than you currently are paying.

Current interest rates are at all time lows right now. Most people who bought a home a year or more ago will find that today’s rates would allow them to shorten their loan length and/or take cash out when they refinance. In many cases, the monthly payments are actually less that what they are paying now. Check out our handy Refinance Calculator!

3 Ways You Profit From the Cash You Take Out

You can do anything with the cash you get! However, here’s how you can profit in the long-term:

1. The 2 Surprising Benefits of Home Renovations

To renovate your home is to invest in your home. A run-down home loses value. Renovations and major repairs increase your home’s market value thus increasing your equity.

You can benefit from a mortgage interest deduction when you use the money to substantially improve your home.

2. College Funds and Retirement Savings

A dollar saved is a dollar earned. It’s even better if your money is bringing in more money. You can profit from the power of compound interest by investing in college funds or retirement savings plans.

3. How You Can Reduce Credit Card Debt, Achieve Debt Consolidation and Enjoy Higher Credit Scores

A cash-out refi has a big advantage over credit card debt: a lower interest rate. Some credit cards charge as much as 22% interest, whereas mortgage rates are at all-time lows right now.

When faced with a situation where your credit card interest rate is high, you could save hundreds – if not thousands – of dollars by using the cash-out portion to pay off your balances and shift to mortgage debt. As an extra bonus, this consolidates your debt into a single monthly payment rather than paying several creditors.

Furthermore, paying off your credit debt improves your credit score by reducing your credit utilization ratio.

Conclusion

Educating yourself about your options, empowers you to make better decisions. Cash-out refinancing can benefit many people today. To find out if it’s right for you, our friendly Loan Advisors are always available help. Just drop us a note below and tell us how you prefer to be contacted.

Want your friends and family to benefit from cash-out refinancing, spread the word on social media today.

Learn more about the mortgage process here.

** It’s always a good idea to consult a financial advisor before taking out a new loan. They can help you determine if the benefits outweigh the costs of cash-out refinancing in your particular situation.

For your FREE, no obligation refinance review, please provide the information below:

[contact-form-7]

The post 3 Eye-Opening Ways To Profit From Cash-out Refinancing Today – Even If You’re Not Money Savvy appeared first on Trinity Oaks Mortgage.