- You have many home refinance options.
- A straight-up home refinance allows you to slash your rate and cut payments.
- A cash-out refinance can consolidate your debt or pay for remodeling.
Explore Your Options for Tapping Into Your Home Equity, Including a Cash-Out Home Refinance or HELOC.
Home refinancing is a great way to lower your mortgage interest rate, reduce your monthly payments, pay for renovations, or consolidate your debt. However, if you are thinking about refinancing your home and have never refinanced a home before, then you need the tools, tips and lenders to make sure that you get the best refinance loan for your needs.
Before you apply for a refinance loan, read the home refinance articles, advice, FAQs, videos, lender reviews, and additional resources available at Bills.com.
In a nutshell, qualifying for a home refinance is similar to qualifying for a mortgage. A refinance lender is looking for stable income, a good credit history, and a situation where the amount of the loan is less than the value of the property. In the refinance world, the phrase used for this concept is “loan to value,” or (LTV) for short. LTV is expressed as a percentage and an ideal LTV is 80% or less.
If you want to refinance to slash your interest rate and payments, Bills.com offers two options to help you start now:
- Our Mortgage Calculator helps you determine whether a refinance makes sense for you.
- Our Quick Quote page can help you find great mortgage lenders ready with rate quotes on the best loans for your situation.
Tap Into Your Home’s Equity With a Refinance Loan
If your home has equity and you need cash, you have two options to tap into your equity: cash-out refinancing or a home equity loan. Depending on your particular situation one may be better for you that the other financially.
Home Equity Loan at a Glance
A home equity loan is a loan on the difference between the market value of your home and the balance that you still owe on your mortgage. As a separate loan in addition to your mortgage, you do not usually pay as much in the closing costs as you do when refinancing. The interest you pay may be deductible if you itemize your tax deductions. Home equity loans are a good choice if your penalties for pre-payment on your original mortgage make refinancing impossible.
Cash-Out Refinancing at a Glance
A cash-out refinance is refinancing your mortgage for more than the current balance on your first mortgage. Home loan mortgage refinancing usually has a lower interest rate than home equity loans, but if you borrow more than 80% of your home’s value then you may have to pay private mortgage insurance. If you have had your mortgage long enough that you are paying more principal than interest each month or if you currently have a good interest rate, it does not make much sense to refinance and a home equity loan will probably be a better option.
Which is Best For Refinancing Your Home?
Investments in the value of your home, starting a small business, or life-saving medical treatment are all good reasons to consider a cash-out refinance. However, you may end up paying more for your total interest than if you refinance your current mortgage at a lower interest rate and take out a home equity loan for a shorter term. Your final decision will depend on what you can afford for your monthly payments and if you are comfortable paying a larger total interest in exchange for lower monthly payments and lower interest rates.
If you are interested in debt consolidation or even debt relief then you may be able to get a lower interest rate with a cash-out refinance, but you lengthen the amount of time over which to pay off your loan. You might want to look into a home equity loan with a short term or simply re-budget and tackle your highest interest debt first and try to pay off your credit cards. This last method will probably save you more money in interest paid over time.
Whether you chose a cash-out refinance or a home equity loan, in either case, failure to repay your loan can cost you your home.
Now is a good time to refinance because rates are at historic lows. We built the Bills.com Mortgage Calculator to give you a quick Yes/No answer to the question of whether a refinance makes sense for you today.
10 Comments
Based on the information you provided your monthly mortgage payment (principal and interest) is about $954. If you were to add the $40k credit card debt and refinance into a $115k, 15 year loan, your monthly payments would be about $808, based on a 3.25% interest rate. You will also have additional saving, because you wouldn't be paying the minimum charges on your credit cards, which should be about $1000 per month currently. If your goal is to lower your payment as much as possible, you could refinance to a longer term loan. If you took out a $155,000 loan at a 30 year term at 4.25%, then your monthly payment would be about $566. If you took out a 20 year loan at 4%, the monthly payment would be about $697. Lengthening the term lowers your monthly payment, but will cost you more over the course of your loan
A disadvantage of consolidating your credit card debt in a refinance is that you would be switching your unsecured debt to secured debt. However, given your strong equity position and desire to reduce your monthly expenses, it would be financially beneficial to refinance and pay off the high interest credit card debt. Consolidating your debt is not a long term solution, if you run up your credit debt again. Take the necessary steps to avoid running up credit card debt in the future.
I recommend that you apply for a loan.
As I write these words in mid-November, refinance rates are at historic lows and I cannot see them getting much lower. A refinance now to lock in a lower rate, whether you do a cash out or not, is a good idea.
I think your best option is to wait and see if the government releases a plan to help underwater borrowers, as is being seriously discussed at this time. Pay attention to the news that is being reported about this issue. Bills.com will certainly write about a new program, if it is rolled out.
I assume the "TIL" you mentioned is the "Truth In Lending" Act disclosure a lender must give a borrower before closing a mortgage loan or refinance. You may need to sign a document acknowledging and approving the retirement of the original mortgage, and you almost certainly will be asked to sign a quitclaim deed, but I do not understand why you need to be disclosed on the new loan.
Bring any document you do not understand to your lawyer for an explanation, and assurance that someone is not trying to take advantage of you.