Cash Out Refinance

Payoff Credit Card Debt

Has your credit card debt become a problem for you?  Do you wake up at night worrying how you're going to pay it back?  Have you reached the point where you don't have any answers? Relax and read this article because a  cashout refinance mortgage loan may just be the answer for you.

If you're have enough equity in your home, income and credit  that will qualify you for a mortgage loan, you may want to consider a home refinance and there are two ways to go about it.  You can refinance your current mortgage loan or you can apply for a HELOC (home equity line of credit). 

Here's how to decide which option to choose.

A. The interest rate for a home loan refinance is in the mid 6s.  If your current interest rate on your first mortgage is less half a point lower than that, then, by all means, refinance your first mortgage, pull cash out of your home and payoff your credit card debt.
B.  If the interest rate on your first mortgage is more than a half a point lower than the mid 6s, then you might want to leave your first mortgage right where it is.  It's doubtful the mortgage rates will return to that level in this lifetime.  You may have been lucky enough to get an interest rate in the 5s during the refinance boom between 2001 and 2003.

There are some exceptions, however, to these two statements.  You need to look at the bottom line.  What will your monthly outgo turn out to be after all is said and done.  Once your credit card debt is paid in full by the refinance, what is your monthly house payment?  Is it going to be lower than it would have been had you left your first mortgage alone and got an equity loan for your credit card debt?

It may hike the interest rate on your first mortgage to payoff your credit card debt.  On the other hand, your equity loan won't be in the mid 6s because 2nd mortgage rates are governed by the current prime interest rate, which results in a higher interest rate than a first mortgage rate. However, even with the higher rate on the second mortgage, the monthly payments on both mortgages may turn out to be less than the combination of payments that include your credit card debt.  Either way, you've made your credit card debt tax deductible.  The only questions should now be, which is the lower monthly payment.

There are only two options for cash out refinances.  Do your homework by getting good faith estimates from your lenders of choice and carefully comparing them for rate and closing costs.  Comparison shop just as you would any other large purchase.  Shop for the best mortgage rates available because mortgage rates determine your monthly payment and the lowest mortgage rate you can find will give you the lowest monthly payment.  Refinance mortgage rates sometimes will be slightly higher than purchase mortgage rates depending on the lender.

If it turns out the 2nd mortgage home equity line of credit is the way for you to go, shop around the for best home equity loans featuring the best interest rate.  Current mortgage rates should play a big part in your decision, unless you're in dire straits. 

Studying your personal financial situation objectively and thoroughly will ensure you have a full understanding of your current financial condition so you can choose the right mortgage option for your circumstances.  Best of luck to you.

Cash Out Refinance