Consolidating debt into new mortgage
It might seem as though there’s no relief from high-interest balances, but you can take steps to lower your burden.For homeowners, one of them is to consolidate your debt and lower your monthly bills by refinancing your mortgage.One way to do this is to perform a cash-out refinance.This type of refinance allows you to turn the equity you’ve built up in your home into cash that you can use for whatever you like."The theory of turning higher debt rates (credit cards) into lower ones (mortgage) is a great idea," says White in an e-mail, "but it usually doesn't work because many of the people who end up in this situation have a habit of spending without conscious decision making." Gayle and Jim Mc Weeney are determined to break that habit.They refinanced their New Jersey home in July, rolling ,000 of credit card and car loan debt into their 30-year fixed-rate loan.But it can also help you get rid of high-interest credit card debt.» MORE: Get notified when you can save by refinancing Almost 10 percentage points separate the average 30-year mortgage rate (3.71%) from the average credit card interest rate (13.66%).
If you’ve already paid several years off your mortgage, you probably don’t want to extend it to 30 years again.If you think a cash-out refinance might be a good idea, make sure you have enough equity that the cash you take out of your home won’t leave you with a loan-to-value ratio of more than 80%, post-refinance.Exceeding that ratio means that you’ll have to buy private mortgage insurance, which can easily cost 1% of the loan value every year.On a 0,000 mortgage, that would be ,500 annually.
To calculate your current loan-to-value ratio, divide your current mortgage balance by the approximate value of your home."We were property-rich and income-poor," says Jo Ann.