 |
Use the Equity in Your Home to Eliminate High Rate Debt
"Mortgage borrowers continue to refinance their mortgages at a higher frequency than historically would have occurred given the rise in mortgage rates over this year," said Frank Nothaft, Freddie Mac vice president and chief economist.
Why? One of the most popular reasons is debt consolidation.
|
Tap Home Equity for Debt Consolidation! |
While locking in a good rate, some of these homeowners are using the opportunity to pull equity out of their homes while they have a chance - a move that perhaps helps them clean up credit card debt at the same time, said Keith Gumbinger, vice president of HSH Associates, a financial publisher of mortgage and consumer loan information.
Debt consolidation can drastically reduce your monthly expenditures, sometimes saving $100 to $500 a month. Using the equity in your home to consolidate debt is wise, and could significantly raise your credit scores because it lowers your debt ratio--30% of the weighted factors in determining your credit scores. Plus, you're trading the compounding interest of your credit cards for a simple interest rate loan, which will save you money in the long run.
There are two ways you can use your equity to eliminate high rate debt: mortgage refinance or home equity loan (also known as a second mortgage). Refinancing involves getting a new mortgage loan altogether and pulling your home equity to pay off your debts. Closing costs can be as high as 4 to 5 percent of your mortgage, but you may be able to roll those costs into the new loan, so you don't incur as much out-of-pocket expense. A 2nd mortgage is a second loan you take out against your home's equity. If your first mortgage has good rates, this may be the way to go. The interest rates will generally be a little higher than those for a refinance, but the repayment terms are generally shorter, which will help you save in the long run.
Consider refinancing your credit cards or other high-interest debt, consolidating many small payments or lowering your total monthly payment, learn what options are available. Be sure to ask your lender a lot of questions about the various loan products and what they offer before signing off on it.
|
|
|
| Resource Tools |
Loan Comparison Calculator
This calculator will help you to compare the total mortgage interest charges of 4 types of loans.
Call 1-800-242-6986
to speak with a loan officer live
|
|
|
