How To Help Yourself Out Of Debt With a Mortgageby Stephanie Snyder Author & Freelance Writer
There is nothing that compares to the anxiety that comes with carrying around too much debt. If you are a homeowner, you may be able to find debt relief by leveraging your mortgage for cash flow. Here is how you can help yourself out of debt by leaning on your mortgage.
Leveraging Your Mortgage
If you are drowning in debt, there is no doubt that this is causing great stress in your life. Rather than trying to chip away at this debt each month and getting nowhere, you need a plan to tackle it head-on. You may be surprised to learn that you have multiple debt pay-off options available to you if you also own your home.
While you want to be extra careful when putting your home up for collateral, it is possible to lean on your mortgage to help you to eliminate these costly debts. This is not a decision to be taken lightly. Before you use your mortgage for this purpose, you must understand the process and implications.
Understanding Your Options
When it comes to using your mortgage to get out of debt, it is essential to remember that you have various options. The first option that many people choose is to simply refinance the principal mortgage and use the cash to pay off debt. Known as a cash-out refinance, this involves procuring a mortgage for a greater amount than owed on the home and using that cash difference to pay off high-interest debt.
A cash-out refinance the benefit of allowing you to make fixed payments over a pre-determined amount of time instead of paying a higher revolving balance each month. Because mortgage rates are almost always lower than credit card interest rates, this can save you a significant amount of money.
Other homeowners choose to open a home equity line of credit and draw from that to pay off the debt. This is a secured loan, meaning that you put your house up for collateral to tap into the cash. The advantage is that you will enjoy lower interest rates when compared to your credit card debt.
Taking Advantage of Low-Interest Rates
There has never been a better time to take advantage of using your mortgage to pay off debt. Due to the ongoing COVID-19 global pandemic and its accompanying economic crisis, interest rates record low levels. This crisis translates to an excellent opportunity for homeowners to leverage their homes’ equity to put them in a better financial position.
Consider Closing Costs
Before you sign on the dotted line, you need to consider the closing costs. It will usually cost you thousands of dollars to refinance a mortgage. This amount is money that you could put toward paying off your debt.
For this reason, you must compare the closing costs to the money that you will save on interest by consolidating your debt. If the savings in interest are more significant than the closing costs, this might be a sound financial decision. If the closing costs exceed these savings, you are better off funneling this money directly toward the debt pay-off.
Use a Trusted Professional
When running the numbers on this decision, you must consult a trusted professional. Because most people do not understand the process’s specifics, using honest mortgage brokers will ensure that you make the best decision for your specific financial needs.
A professional will help you to make sound decisions with your money. They will also be able to guide you through the process so that nothing falls through the cracks. Lastly, an informed mortgage broker will help you secure the best interest rate available to ensure you are using this strategy to its full advantage. With a decision as big as this, you do not want to leave thousands of dollars and your financial future up to chance.
If you are like most people, your home is your most significant financial asset. Using your home’s value to your full advantage can help
Created on Nov 20th 2020 15:09. Viewed 600 times.