Tag: Refinancing

Eliminating Debt

Extinguishing Non-Housing Debt with Housing Wealth

There are households with a low mortgage interest rate but tens of thousands of dollars in high interest credit card debt and other loans leaving them with less than a desirable amount of cash- flow. Many might resist even considering a refinance because mortgage rates currently being offered are much higher than what they currently have.

A cash out refinance could be a great solution to help them. They could possibly increase their monthly cash-flow, pay off their mortgage sooner which seems kind of counter intuitive, simplify their finances, improve their credit score, grow their wealth/savings or a combination of these results.

An example, Bob & Mary refinanced their loan back in 2020 in the 3% range and currently owe $336,350. They have $42,000 in credit card, student and auto loans that are costing them $2,426 per month. There are at least 3 paths we can take here. Here are the most obvious to me.

1. By refinancing their existing loan balance and pulling out an additional $42,000 at a new rate in the 6% range, the monthly non-mortgage debt would be eliminated. As a result, Bob & Mary now have freed up approximately $491 per month.
2. By refinancing and paying off the non-mortgage debt and taking the $491 in savings and putting down the mortgage balance monthly, Bob & Mary will pay off that mortgage in 19.25 years versus the 26.75 year pace they were on. So, without spending any more total dollars they will shave off over 7 years of mortgage payments.
3. Another option is putting that $491 per month into an investment account. If that account achieved a consistent 5% annual return all years, it would have accumulated almost$131,000 after 15 years. *

As with most financial questions, the right decision depends on one’s circumstances, discipline and goals. A certified mortgage advisor can help evaluate each individual financial situation and determine if a cash out refinance is the right choice for them.

*The information contained herein is distributed for educational purposes only. Fairway does not guarantee a mortgage loan will result in equity gains or other advantages. Any potential benefits from homeownership are based on individual factors. Contact your Fairway loan officer for more informationregardingyourspecificsituation.Thisisnotanoffertoenterintoanagreement.Notall customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply.

MarkRichardsLONMLS#254317. Licensed by the NJ Department of Banking and Insurance. Licensed Mortgage Banker- N.Y.S. Department of Financial Services