How to lower your mortgage rate, lower the monthly payment, and use the equity to pay off debt
Nearly 2/3rds of all consumer debt in America is tied up in mortgage debt. If you’ve been reading our debt series, then you know now that mortgage debt isn’t necessarily a bad thing. Not only is it good for the economy, but it’s a good sign that more of our friends, family, and acquaintances are in a position that lets them put a roof over their heads while building equity along the way.
But mortgage debt can cause people to struggle. It’s possible you got into the market at a bad time and have high-interest rates. The Covid-19 pandemic may have got you in a tough spot. Thankfully, some good ways to help relieve yourself from the strains that a mortgage can put on your finances. (It probably is your largest monthly expenses after all)
In the process of lowering your monthly rate and monthly payments, you may be able to easily knock out some other forms of debt along the way!
Mortgage Refinancing: What is it and why you should look into it now more than ever
Whenever you refinance your mortgage, you are essentially replacing your old loan with a new loan. It’s possible your credit wasn’t in the best shape when you got your mortgage, or maybe you bought your house just before the 2008 housing market dived.
Mortgage rates are almost at a record low as of May 2020.
Not only will refinancing help you get a lower interest rate, but it can also help you get a lower monthly payment as you now owe less than the original mortgage. And, if you’re really struggling, you can probably extend the terms of your loan for an even more reduced payment.
Extending the terms on your mortgage means that you’re going to be in debt for many years longer than when you originally bought the house.
How Do You Refinance Your Mortgage? You’re going to want to get together some documents first: A copy of current mortgage showing how much you owe, a list of current incomes for you and your spouse or cosigner, a list of recurring monthly expenses, and a personal financial statement if you’re refinancing more than $250,000.
Once you’ve got your documents together, you want to shop around before actually applying. Start with your current mortgage lender, let them know you’re wanting to refinance, and ask them what their rates are. Check around with other lenders. (Online-only lenders like Rocket Mortgage and Sofi tend to have great rates!)
Once you’ve shopped around to find the best interest rates, submit your application and let the loan officer guide you through the process. They will want to see some or all of the documents you’ve gathered, and they may need to have your house appraised.
Things to consider when refinancing your mortgage: Refinancing may involve fees. Loan origination fees, appraisal fees, closing costs, etc.. so be sure and ask about that upfront. Some lenders will let you roll these fees into your newly refinanced loan if you’re not able to pay for them upfront.
Cash-Out Refinance For Debt Consolidation
Whenever you’re refinancing your mortgage, you may be able to take cash out by tapping into the equity of your home. If you owe $120,000 on a home valued at $200,000, then you’ve got $80,000 in equity. Many lenders will lend out up to 80% of the value of your equity. So in this scenario, the homeowner would be able to get up to $64,000 cash out.
If you have five figures worth of debt or more, you may want to consider this. You would be able to pay off all of your debts and roll it all into your monthly mortgage payment. Because your home acts as collateral to your loan, the interest rates will be lower than any other type of loan out there on the market.
Your debt will not disappear; it just gets rolled into your mortgage payment. Not paying your credit cards results in some bad marks on your credit history. Not paying your newly refinanced mortgage means you will lose the roof over your head.