Using Cash Out Refinancing To Consolidation Your Debt

By Author: Tracy Pridemore
Total Articles: 12
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Even the most careful consumer sometimes get in over there head with debt, with the instant gratification world we live in, many find themselves over-do on debt, especially on credit cards or other non- appreciable debt such as payday loans. One popular and beneficial way to wipe the slate clean, or at least get a foot up on high debt, is through a "Cash-out Refinance".

If you have equity in your house (meaning the appraised value is larger than the amount currently owed on your Mortgage Loan), you can access that money and put it to work for you. Instead of continuing to pay on those high interest credit cards and never seeming to make a dent in the balance, the cash out can help you start over with the credit card companies, and, depending on your area, your home appreciation could grow faster than your cash out, but do not depend on this.

Some of the benefits of replacing credit card and revolving debt with mortgage debt are:

· Paying off high interest loans (credit cards) with a much lower interest loan, showing less outstanding loans on your credit and a less number of payments at bill time.

· ...
... Lowering your monthly totals on bills, freeing up cash for everyday expenses or to ad more to the Principle portion of your Mortgage loan. I've seen examples of homeowners restructuring their current home loans to pay off debt, saving $600 or more per month, which they used back on the principle, carving several years off the length of the home loan.

· Term reduction with a totally new loan, you have the opportunity of re-structuring with a shorter term directly by taking monthly savings of money not now needed on credit cards and applying the money to your loan, making your term shorter.

· When using a payment deferral during a refinancing, you usually end up skipping a payment or two in the lender switch. This can add up to a large amount that could be reapplied to your home loan or those pesky credit card bills.

· Raising credit scores, mortgage loans are looked at more favorably than credit cards, especially when your balances on those credit cards exceed 35-50% of the maximum balance allowed. By paying existing loans, credit scores go up positively when the companies report their information in average three month intervals.

· Advantages on your taxes. At this point you receive no tax benefit for payments you're making on credit card bills; if you transfer that same debt to a mortgage loan, you receive a tax advantage on the interest you paid on that loan. For example, let's say you're in a 40 % tax bracket. For every $10,000 spent on interest on your home loan in that year, you could receive a $4000 deduction!

This is only the highlights of refinancing your home for debt consolidation purposes.

There are some precautions that MUST be taken into account or you'll find yourself even deeper in debt. When loans of this nature are used to get out of debt, one must go into such a strategy with just that mindset. If a cash out refinance is handled to rid yourself of credit card debt, then you turn around and max those cards out again, you will never get out of debt and it will catch up to you. Most lenders evaluate credit reports for these kinds of patterns before approving a loan. Be disciplined in your spending! Make it a goal to follow through on your long-term plan to control your debt so it does not control you, and the decision to refinance with cash out to get out of debt can be a very smart move.

· If you pay only the minimum payment stated on your revolving credit card, for most people, it can take up to 30 years or more to pay off the balance of a few thousand dollars. Most mortgages are refinanced every few years for the average person, due to the increased value of the property, or relocation.

· When lowering your monthly bill payments, it's interesting to see what % of an increase that affords you with your current income. As little as $400 savings per month that you get to keep can mean a very nice raise you can give yourself...and you pay no more taxes on it!