Consolidating Debt and Cash Out Refinance
It is hard to catch up on debt for many American households – especially when it comes to credit card debt, second mortgages with higher interest rates, auto loans, and student loans. Consolidating debt can have tremendous savings when going through with cash out refinance.
U.S. households may carry a significantly higher interest rate on their credit cards than on their mortgages. In some cases, even cardholders end up paying a higher rate on higher balances.
Recent Case Scenario For A Cash Out Refinance – Closed In 2018:
Old Mortgage Payment and Debts:
- Principal and Interest Payment of Mortgage: $1151.98
- Minimum Revolving Debt Payment: $911
- Debt Balance On all Credit Cards: $27,427
New Mortgage Payment and Debts:
- New Principal and Interest Mortgage Payment: $1,161
- Cash Out Amount to Pay off Debts: $29,316.91
- Minimum Revolving Debt Payment On Cards After Paid Off: $0
- Debt Balance On All Credit Cards After Paid Off: $0
Every consolidation loan is different, but consolidating debt allowed this borrower save $911 a month on credit card payments. It may seem as if there is no relief when paying a portion of the credit card each month and the interest keeps building up making borrowers feel that they will never catch up. Every cash out refinance has different results – some may save more and others will save less.
Using The Equity in Your Home To Save Money – Cash Out Mortgage
In most cases, borrowers will notice that mortgage rates are lower than auto loans, student loans, credit cards, and other debt obligations. Depending on the type of loan, the maximum loan-to-value will vary. Calculating your loan-to-value is not difficult and is calculated by:
- Dividing the current mortgage balance by the approximate value of the home.
- (Current Payoff Amount) / (Estimated Home Value) = Loan-to-value
- This can help you estimate how much equity is in the home and how much room there is to cash out.
- Conventional Loans:
- Consolidate debt and cash refinances allow up to 80% loan-to value with no mortgage insurance for a primary residence.
- Cash out mortgage and consolidating debt on an investment property of up to 75% loan-to-value.
- FHA Cash Out Refinance
- Up to 85% loan-to-value with no pricing adjustments on the interest rates for cashing out.
- Conventional loans often have pricing adjustment on a cash out refinance.
- Up to 85% loan-to-value with no pricing adjustments on the interest rates for cashing out.
- VA Cash Out Refinance
- The maximum loan-to-value on a debt consolidation and cash out mortgage is 100%.
- (Current Payoff Amount) / (Estimated Home Value) = Loan-to-value
Benefits Of Consolidating Debt and A Cash Out Refinance
- Defer up to two mortgage payments.
- Possibility of lowering the overall monthly debt payments.
- If the loan is FHA, possible refund of initial FHA insurance premium and lower monthly insurance.
- May be able to have one low monthly payment with no high balances with many different accounts.
- May get a refund of current escrow balance.
Most people have seen values in their homes go up. Borrower can use the debt consolidation and cash out refinance to eliminate mortgage insurance forever or knockout stressful debt obligations.