How Cash-Out Refinancing Can Help You Beat Credit Card Debt
As you may have seen in the news, the Federal Reserve has decided to hold its key interest rate steady, opting for stability as it evaluates ongoing economic indicators.
With recent economic conditions, many Americans are struggling with credit card debt. According to Motley Fool, the average American household has about $8,483 in credit card debt. It’s a tough situation, with minimum payments and high interest rates making it feel like a never-ending battle.
One option to consider under the right circumstances is a cash-out refinance, which can help you leverage your home equity to consolidate credit card debt. Although the principal balance and current interest rates on your new mortgage may be higher than your original loan, these rates will be far lower than credit card interest rates, leading to significant interest savings over time.
However, it’s important to note that cash-out refinancing may not be available for every borrower, and there are closing costs to consider. No two borrowers are the same, so it’s crucial to weigh the pros and cons:
Pros:
Lower Interest Rate: Credit card interest rates can be as high as 30%, while mortgage rates are much lower. Cash-out refinancing can be cheaper than alternative funding sources like personal loans.
Improved Credit Scores: Paying off credit card debt with refinance funds can lower your credit utilization ratio, potentially boosting your credit scores.
Cons:
Loss of Home Equity: A cash-out refinance reduces or eliminates the home equity you’ve built over time.
Extended Mortgage Payments: Replacing your old mortgage with a new one effectively extends your loan term. For instance, refinancing a 30-year mortgage after five years could mean paying for 35 years in total.
Remember, refinancing can help address high-interest credit card debt, but it doesn’t eliminate the debt or prevent future charges. This strategy is typically best if your credit card debt is extensive – thousands of dollars, not just a few hundred. You’ll also need sufficient equity in your home to make it worthwhile.
For personalized guidance, please provide a summary of your existing debts, including outstanding balances, interest rates, and monthly payments. This will help us tailor a refinancing plan that fits your needs without compromising your long-term financial stability.
The BankSouth Mortgage Advantage:
Experience the speed of ReadyApprove from BankSouth Mortgage, where you can secure conditional approval for conforming loan limits within hours. You’ll be armed with the confidence to quickly submit an offer, and the seller will see you as a serious, prepared buyer. Have peace of mind with our FREE one-time rate float-down and no lender fee refinance options!
Take advantage of our Buy Now, Refinance Later with a No Lender Fee Refinance* option for buyers who are purchasing currently at increased interest rates. Homebuyers who started their loan application with BankSouth Mortgage on or after June 15th, 2023, and close their loan with BankSouth Mortgage will be eligible for exclusive savings. Available on primary residence only and must be used within 60 months of the close date.
*Must refinance after 6 months from the 1st payment date and within 5 years of the close date. Available for new applications on or after 6/15/2023. Subject to credit and property approval. Additional conditions may apply. Terms are subject to change. “No Lender Fees” only apply to origination charges.
Blog post date: Thursday, June 13, 2024
