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Answered: Should I refinance my mortgage to pay off debt
There’s no doubt about it—2020 has been a year like no other.
Economic and public health upsets have placed some homeowners in a position where they may be mulling over a home refinance. Some are even thinking of selling their home to weather a challenging time.
It’s therefore not surprising that we often hear this question: “Should I refinance my mortgage to pay off debt or pursue other options?” This is commonly known as a cash-out refinance, and it allows the homeowner to borrow against their home’s equity to pay off debts.
We recognize that while housing prices are stable and rates are low, not every homeowner is approaching their home refinancing with ease. That’s why we’re sharing what to keep in mind when refinancing your home to pay off debts.
If you’re a homeowner who is considering refinancing to pay off debts, keep reading for our expert insights.
Think it through first
When asking yourself should I refinance my mortgage to pay off debt or not, you must evaluate the impact this will have on the mortgage.
For example, if you borrow against your home’s equity, this will need to be paid back. As such, the funds you obtain to pay off debts will be rolled into your mortgage. This can impact the size of your monthly payments.
Besides adding to your mortgage’s balance, here are some other things to keep in mind:
- Does your home have enough equity? A loan officer can explore your situation to determine whether your home currently has the required equity to take advantage of a cash-out refinance.
- Can you afford the new monthly payments? This one seems obvious, but when homeowners are under financial stress, they may be apt to act hastily to alleviate their debts. Speak with your local mortgage broker, who can walk you through a clearer picture of what a refinance will mean for you going forward.
- Does this impact the term of your loan? If you’ve been paying your mortgage for the past 15 years, you may not be enthusiastic about extending the term. Is it smarter to find an alternative way to address your debts, rather than interrupt how quickly you can pay off your loan? Again, we recommend you speak with a mortgage professional to review your circumstances.
This is just a portion of what you should think through before pursuing a mortgage refinance to pay off any debts. Next, we’ll explore a few options to explore.
Here are some of your options
When asking, should I refinance my mortgage to pay off debt, please be aware that it’s paramount to consult a mortgage professional that you trust. Every homeowner’s situation is unique, and a professional who’s familiar with your mortgage is in a great position to help you.
Below are a few loan program options you may wish to bring up with a mortgage professional.
FHA Cash-out refinance
The Federal Housing Authority (FHA) offers a cash-out refinance option to borrowers looking for needed funds. The program is relatively straightforward, and a mortgage professional can guide you through it.
In order to be considered for an FHA cash-out refinance, borrowers:
- Must have at least 20% equity in their home.
This is important since the FHA will require a new home appraisal to determine whether your home has sufficient equity to be eligible for this refinance.
Remember that your home’s equity is the amount your home is worth subtracted by the amount you owe.
Debt consolidation refinance
In addition to the FHA program, there are many general debt consolidation refinance options available from a variety of lenders. Speak with your mortgage broker and loan officer about finding an option that works best for you.
As mentioned earlier, it’s essential to run your circumstances by a broker or loan officer. These professionals know every corner of the mortgage industry, not to mention a range of options not available at banks.
If you want solutions that are tailored to your needs, a mortgage broker’s office should be the first stop on your refinancing journey.
We’re here to guide you through
Life doesn’t always go the way we intended it to. Yet, homeowners have options available to help see them through challenging times.
If you’re asking, should I refinance my mortgage to pay off debt, then we invite you to contact us. We work with current & future homeowners to ensure that they have every resource they need to make informed decisions about their most important asset.
Refinancing your mortgage under any conditions is a big deal, which is why you deserve expert advice guidance on how to make smart choices during challenging times.
Our expert loan officers dig deep to offer individualized solutions to a range of complex mortgage needs. If you’re in a position where you’re considering refinancing your mortgage to pay off your debts, get in touch with us.
Meet our outstanding team of loan officers ready to find a way.