Home Improvements and Better Overall Cashflow

According to a 2022 CNBC article, citing recent data from WalletHub, the average American household credit card debt is $8,942. However, 1 in 5 has over $20,000 in credit debt. While $20,000 could be arbitrary, if there is too much month left at the end of your money, then it’s time to see if paying off credit card debt will improve cash flow.

WHAT ARE THE CONSEQUENCES OF MAXING OUT CREDIT CARD BALANCES OR MAKING LATE PAYMENTS?

Of the many criteria our credit scores are computed, payment history and proportion of balances to credit limit play a large part. Having maxed-out credit cards and making a late payment will crater your score and prevent you from having any flexibility in borrowing, should you have a need-based circumstance for funds like a new car or home repair.

WHAT ARE YOUR OPTIONS?

If you are like the millions of Americans struggling with credit card debt one solution might be to consider how to best use the equity in your home to help. If you want to pull cash out of the equity of your home to pay off credit card debt, you will be weighing the benefits of improving monthly cash flow against increasing mortgage rates. So, we will talk about which would be better; A HELOC or a Cash-out mortgage refinance (1st Mortgage).

HELOC vs. Cash-Out Refinance: What’s the Difference? Choose between a revolving line of credit and a lump-sum payment. But while your home equity secures both loan options, they differ in many ways. Understanding the differences between a HELOC vs. Cash-Out Refinance can help you determine the better option for you.

A HELOC acts as a second mortgage and provides you with a revolving line of credit that you can use repeatedly. A Cash-Out Refinance replaces your existing mortgage and provides a lump-sum payment.

Refinancing Strategies

When it comes to refinancing, sometimes it’s not just about the rate, but the improved household cash flow from eliminating your debt.

• Get a Fixed Rate - Take the refinancing opportunity and lock in a fixed rate/payment. This improves your household cash flow by paying off your unsecured debt such as credit cards.

• Cash Out - You can borrow more than you owe and even keep the difference with a cash-out refinance. For example, you owe $200,000 on your home but your home is worth $280,000. Meaning, you have acquired $80,000 of equity. This doesn’t mean you will receive the full $80,000 but most companies allow you to borrow up to 80% of the value of your home. In this scenario, you can refinance up to $224,000. As soon as $200,000 is paid off, you will be left with $24,000 in cash to use.

Considerations When Refinancing

Refinancing is a move you should make if it’s right. You are going to want to consider a few things. It is best to refinance when you know your interest rate will be lowered by 1% or more. Be aware of closing costs. This can include charges for an appraisal, attorney, title insurance, taxes, and more. These costs can add up to 3 to 6 percent of your loan’s principal amount. You should also think about how long you plan to remain in your home. Calculate what your overall monthly savings would be if the refinance were to be completed. If you end up saving a thousand or more annually with a refinance, you’re in a good position. Your lender can help to calculate any costs for the refinance if you decide to go through with it. Let’s say your costs add up to $2,500, divide the cost by your annual saving from refinancing (let’s say $1,625). You’ve found your break-even point–1.6. So, if you plan to stay in a home for two years or more, refinancing would be a sensible option here. If your annual savings were less, it would increase the duration you have to stay in your home.

Conclusion

Contact a loan provider to see how they can help you and answer all the questions about:

• How They Work

• Repayment Terms

• Costs

• Loan Amount and other common FAQ’s Bottom Line, Which Is Right for You? Picking the best mortgage lending partner possible can make the difference.