Most debts come with extremely high interest rates which can add up quickly. Oftentimes, the best way to get ahead of this is through debt consolidation.
How does refinancing your mortgage impact those high-interest debts?
What Is Refinancing For Debt Consolidation?
The main purpose of debt consolidation is to decrease the payments of your debts on a month-to-month basis by putting these payments in lower interest loans. Less interest equals lower payments. Consumer debt like credit card debt has astronomical high-interest payments attached to it.
Credit card debt and other personal loans have a much higher interest rate because unlike your home, there is no asset that the lender can fall back on if you end up defaulting. Mortgages are secured by homes, therefore they can have a much lower interest rate attached to them.
Using a mortgage refinance to consolidate your debt is an excellent move to save money on your monthly payments and simplify your debts.
How Does A Debt Consolidation Refinance Work?
Luckily, there is more than one way to consolidate your high-interest debt through a mortgage refinance. One popular way of consolidating your high-interest credit card debt is through a cash-out refinance. A cash-out refinance allows you to pull cash out of your home and replace your mortgage with a brand new one. Pulling that cash out from the equity in your home can give you the money immediately to pay off those higher-interest debts that you have.
The best part is that right now mortgage interest rates are near historic lows, which means you’ll likely be able to pull that cash out and lower your interest rate all in one transaction.
Other Debt Consolidation Options
Another way that you can get the cash to consolidate your debt is by using a HELOC (home equity line of credit). A HELOC allows you to tap into your home’s equity, but only when you need to. The interest rate is adjustable and you only need to repay when there is money to be owed from when you borrow. If you’re already locked in with a hyper-competitive rate, a HELOC could be a better option for you rather than a cash-out refinance.
Another option to consolidate your debt is to get a pure debt consolidation loan rather than a debt consolidation refinance. If you do not currently own a home, a debt consolidation loan is going to be a better route for obtaining that money. If you don’t have enough equity in your home to borrow, then a debt consolidation personal loan may be a better option for you.
About AdvantageFirst Lending
AdvantageFirst Lending is a mortgage lender located in Orange County, California that specializes in cash-out refinances and all other loan programs. We are the gold standard when it comes to customer service and proactive support for our borrowers. For more information, visit our website and follow us on Facebook and Instagram. Also, be sure to check out our reviews on Zillow.