It’s the holiday season and thinking about your mortgage is likely that last thing on your mind. However, if you’re sitting with a lot of equity in your home yet can’t seem to manage your debt payments, perhaps thinking about your mortgage is the best thing you can do. With credit card interest rates often pushing the 20% range, and mortgage rates hovering around 2.99% for a five-year fixed rate, refinancing becomes an attractive option.

If your mortgage is up for renewal, paying off high-interest debts may be the smart thing to do. However, like all decisions, you need to look at the big picture. Here’s what you need to consider:

A refinance is altering the terms and conditions of your mortgage; specifically you are increasing the amount of your mortgage to pay off debt. Your mortgage payment may or may not increase, depending on a number of factors, but you will be paying off the refinanced debt at a much lower interest rate, which could save you thousands of dollars in interest in the long run. Here are some reasons to refinance:

  1. Decrease your overall monthly debt payments by using your equity to pay off those high-interest credit cards or unsecured loans, which can help you better manage your budget.
  2. You can refinance to purchase another property. Using the existing equity in your home can be a great way to buy a rental property which, if done right, can also make the interest you pay tax deductible.
  3. You could also take out some of the equity for investment purposes — an option that many homeowners consider this time of year as they look ahead to the new year
  4. And there are more uses for your equity such as helping putting your kids through school.

Repayment

Remember that borrowing against your property is not free money. You still own the home so the mortgage loan has to be repaid.

Spending Habits

While using the equity in your home to pay off debt certainly eases the financial stress, there may still be challenges. However, some people have experienced a job lay-off or an illness that contributed to their unmanageable debt loads. Make sure you understand what got you into your current situation.

Real Estate Market

Equity measures the fair market value of your property against the balance owing on your mortgage. If you borrow against your property, you may worry that the market will drop and your home value with it. However, the government implemented a few safeguards in the last few years with respect to refinancing: where once you could refinance up to 90% of the value of your home, that percentage has dropped to 80% of the value of your home. By making that change, the government is basically saying it is somewhat confident that house prices will not likely fall far enough for you to lose equity.

Speak to a Professional to Understand your Options

As you can see there are many factors to consider before deciding to refinance. Each individual’s financial situation is different. Let’s talk about your unique situation and the options available to you.

Call me today!