Tapping into home equity with a mortgage refinance is becoming very popular for many borrowers.
As housing values across the country have appreciated nearly 35% over the last 5 years, homeowners now have access to a much larger source of equity.
With current mortgage rates still historically low and home equity on the rise, it’s a perfect time to refinance your mortgage to save not only on your overall monthly payments, but your overall interest costs as well – and take best advantage of today’s tax implications.
Improve Your Debt Profile
We can look at the weighted average interest rate on a borrower’s credit cards and other liabilities to determine whether moving the debt to a mortgage will get them a lower rate. Some borrowers are saving thousands per month by consolidating their debt through their mortgage.
Well, that home today may well be worth in excess of $350,000!
Even if you’ve refinanced since and have an interest rate in the 4% range, if you have any other sources of debt, a refinance will most likely result in a large monthly savings.
Let’s assume you have a debt list that looks something like this – or a combination of similar liabilities:
A few credit cards, a car payment, and a student loan (or even a home-equity line of credit) can easily total nearly $50,000 overall and over $1,000 per month. Many of the customers that work with me are in situations very similar to the one listed above.
New Payment and Monthly Savings
So, when you combine all of your liabilities into the mortgage, here’s what your new overall payment looks like:
Note that the monthly savings is nearly $900 per month!!
Here’s what a new refinanced loan might look like:
Your loan amount has increased by about $50,000 – and your mortgage interest rate has also increase by over 1.25%. However, your OVERALL interest rate of all debt will most likely be similar to where you are today (assuming credit card debt is more like 15% or more). Also, you will only have one payment to manage – versus balancing multiple payments.
Now, let’s do a little more math…
Let’s say you take that $900 in savings every month and apply it to the new mortgage:
That’s right – you would save $55,000 over the life of the loan and reduce your number of payments by 213! You would be turning your 30-year mortgage into a 12.25 year version.
The numbers are staggering. One other thing to do would be to check with your CPA or financial advisor, as the interest on the new loan would most likely be tax deductible, whereas any home equity lines and credit card interest are generally not tax deductible.
Please do reach out to me right away and we can take a look at your current scenario to see if a refinance might be a good option for you, as it would be my privilege to help!