Mortgage rates are at historic lows. With fixed interest rates around 3%, now is a fantastic time to use the equity in your home to consolidate debt and save money monthly. Homeowners with car loans, personal loans, and credit card debt can save a significant amount of money by converting their debt into home refinancing.
If you own a home that is worth $400,000 and owes $220,000, you have $180,000 in equity. This equity can be used to help consolidate debt.
How much you could save
Mortgage loans: $220,000 with a monthly payment of $1,798
Visa Card: $13,000 with a monthly payment of $398
Master Card: $9,700 with a monthly payment of $307
Car loan: $18,000 with a monthly payment of $405
Personal loan: $16,000 with a monthly payment of $330
Total debt: $276,700
Total payments: USD 3,238
If you took on all of that debt and refinanced into a 30-year fixed mortgage at 3.5%, the monthly payment would only be $1,242. A saving of $2,000 is monumental. Part of the savings is due to lowering the overall interest rate and extending the repayment period of your credit card and car loan debt. For example, a car loan is usually for seven years or less. When you combine this balance with other debt to form a thirty-year mortgage, you extend the number of years you have to repay that debt.
Consolidating debt through a payout refinancing is another way to give you control of your monthly budget and free up cash flow for additional expenses. For people who have a drop in income, have unexpected medical bills, or simply want to have more play money, this is an ideal solution.
Refinancing and consolidating your debt can also help you pay off your home loan earlier. If the above borrower could continue to pay $3,238 a month for debt, they would count the additional $2,000 each month directly against the loan’s principal balance. At this interest rate, the loan could be paid off in full in just over 8 years! That’s amazing for people who want to be debt-free. It’s not as hard as it sounds. You can easily be debt-free with this plan if you stick to a monthly schedule where you take all your savings and apply them to the capital. This still leaves flexibility for borrowers because if an unexpected bill pops up, you can keep the savings that month. The refinancing puts you in the driver’s seat. If you don’t consolidate your debt, you’ll remain tied to payment plans and schedules set by creditors.
Refinancing rates are low, so contact a mortgage banker today to discuss your loan options. There are various refinancing programs to save you money. Whether it’s consolidating debt or simply lowering your interest rate, the savings can release cash flow on a monthly basis and give you the opportunity to repay your home loan earlier.
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Wendy is now a financial analyst and writer. Wendy has been writing about finance and personal finance since she was a sophomore in high school. She has also been writing for several online publications and published in The Huffington Post, and Forbes Woman.
Wendy is a credentialed financial analyst and has experience working with financial institutions and businesses. Wendy is also a certified financial planner. When Wendy's not writing, she enjoys tending to her many plants, watching TV, and spending time with her family.
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