Stop Living Paycheck-to-Paycheck: Use Your Equity to Pay Off Debt

With the pandemic behind us, student loans are due again, and credit card debt is in the trillions. If you own a home, this additional debt can feel overwhelming. But there’s great news! Home prices have continued to rise, so your equity is an amazing opportunity to get out of all that high-rate debt: a cash-out refinance!

What Is a Cash-Out Refi?  

First off, a quick review. To refinance means to exchange your current mortgage for a new loan with all-new terms. Refinances can be rate-term or cash-out, and they help borrowers lower their payments, lower their rate, shorten their loan’s term, or access funds for life’s many changes.

With cash-out refinances, you apply for an entirely new loan with a larger principal to replace your original mortgage, and you pocket the difference at closing. The amount you receive depends on your equity, financial profile, and loan program, but regardless, you’ll have extra funds put toward other debts or big expenses. 

Why Use a Cash-Out If My Rate Will Go Up?

Crazy, right? You have a good rate – why refinance to a higher one?   While mortgage interest rates are higher than where they were a couple of years ago, the average U.S. credit card interest rate has typically stayed at or above 20%. Mortgage rates fluctuate over time, but credit card rates typically remain high, even for the most qualified borrowers. Now, picture this illustration:  

• Your current mortgage payment is $1,500 

• But your total monthly credit card payments are an additional $1,000 

• Refinance to a $2,000 monthly payment, pay off that credit card debt, and now you’ve saved $500 a month - even with a higher mortgage payment. 

 Additionally, a cash-out refi can…  

• Lower your overall monthly payments. That means fewer bills to keep up with and less chance of late or missed payments. 

• Improve your credit scores. Less debt can mean better credit scores.  

• Grow your financial future. With fewer monthly bills, you’ll feel better about your finances now, and later. 

Is Your Rate Making You a Housing Hostage?

A side note for homeowners who want a new home, but don’t want to lose their current great rate. Consider these options:

Buy down your interest rate: Pay discount points up front at closing for a lower rate, or ask about a temporary buydown, where your rate is lowered the first two years.

Consider government-backed loans: If you’re a Veteran, you probably know about zero-down VA loans. But with a USDA loan, you don’t have to live on a farm (or make a down payment!), and FHA loans can offer great rates with only 3.5% down. 

Add a renovation: Home improvements (additional bathroom, new garage doors, etc.) can increase its value, which can mean more money when you sell. (New windows or HVAC system can also bring clean energy tax credits!) Ask about Atlantic Bay’s renovation loans! 

Is a Cash-Out Refi Right for Me? 

Cash-out refinances aren’t for everyone. They can be riskier than a regular refinance because not only could you lose your home if you default, but you’re adding money to your mortgage, reducing your equity, and you’ll have to pay for all the upfront costs of lending over again. 

That said, debt can have lifelong consequences if not addressed quickly. If you do your homework and understand the risks, a cash-out can be a better solution than ongoing, unsecured loans with double-digit interest rates.

When you’re ready to start your cash-out refinance, we’ll be ready to help. Just give Atlantic Bay a call!