Using your home equity as a debt solution.

If you are in the enviable position of having equity in your home and/or investment property right now but are burdened with other creditors than this may be a debt solution worth looking into.  The way to have access to the money that is in the value of your house without selling to a new buyer is to refinance.  By refinancing you are taking equity out of your property and will now have a larger amount you owe to your home lender.  However, in the times we are in right now it may very well be advantageous to take on more home debt than you had previously.

Let’s talk about the advantages of using your home equity as a tool to a more comfortable monthly household balance sheet.

Interest rates

The biggest reason this may be the best time in US financial history to refinance and pull equity out of your property is because the amount you have to pay back on a monthly basis may be lower after you refinance and pull money out of your home and the lentgth of term may be the exact same amount of years you have right now.

A Debt Solution

Here is a sample scenario:

Suzy owes 200k  on her home and her interest rate is 6.5%.  That would make her mortgage payment around $1264 a month.  Thankfully Suzy’s property is worth 285k.

Unfortunately she also has 25k in credit card debt that has a 3% minimum payment per month if $750.

By refinancing to a lower rate of 3.4% and pulling 25k out of her home equity to pay off her credit cards Suzy will literally make her credit card debt vanish.

Her new monthly mortgage payment based on the new increased amount of $225k will go down to around $998 per month.  So not only will she have $750 more in her pocket every month because she doesn’t have any more credit card payments but she is also saving $266 a month off of her old mortgage payment.  That is a total of more than 1k in Suzy’s pocket every month.

Isn’t that crazy that by simply changing where your debt is located you can change your financial picture so dramatically?

Tax deductible debt solution

Ok, so everything up to now is really pointing to this being a good solution.  It gets better.  Now the interest you are paying on that 25k in increased mortgage debt is tax deductible.  Which come tax time is really cool.

What debt to pay off

There are all kinds of debt that this strategy can help pay off from credit cards, cars, boats, 2nd mortgages, back taxes, school loans etc.

Lending Criteria

Obviously just because you have equity doesn’t guarantee that you will qualify for a cash out refinance.  Check with multiple lenders to see if you fit their lending criteria.  It’s better to know sooner than later what could get in your way of your successful refinance so you can make the needed changes as quickly as you can to take advantage of todays low interest rates.

This is a debt solution that might make a lot of sense right about now.