1 Easy payment- Refinancing into one payment makes life a lot easier. You may decide to wrap high interest credit cards, car loans, equity lines, school loans, home improvements, and any other obligation you can think of into a home loan. Placing the bills you choose into your hoe loan will be easier to manage and will help prevent you from missing any monthly payments.
Lower interest rate- Generally your new home loan will have a much lower interest rate than your credit cards and other unsecured debt. Many credit card rates range in the 10-29.99%. The current national average is over 15% and many minimum payments are 2-3% payback each month. Most minimum payments on credit cards barely cover the interest and are amortized over 25-30 years.
Lower overall monthly payments- Consolidating your credit cards and other bills into your home loan may allow for some substantial monthly savings. This should significantly improve your monthly budget. Your new found savings may allow you to accomplish many financial goals.
Build a savings for emergencies- I suggest 6-12 months of cash reserves in an account incase of an unexpected job loss, medical crisis, and unforeseen expenses. You may contribute more towards your retirement gaining interest. Home owner who have interest only loans; the monthly savings could allow you to pay down the principle balance of your loan sooner. You may be able to save for vacations, education for your children, and secure a healthy financial future for your family.
Debt free sooner- Consolidating all your bills into one payment will provide you with a substantial monthly savings. This could allow you to apply some of the monthly savings towards your home loan and pay it off years earlier. Did you know that one extra principle payment per year will remove 7 years on a traditional 30 year mortgage? This will save your thousands in interest allowing you to become debt free sooner.
Tax savings and reduction of interest – Combining your monthly obligations into your home may allow you to deduct the interest from your mortgage. Credit cards and other monthly expenses may not be tax deductible. I suggest speaking to a licensed tax professional to explain the tax benefits from your refinance. The savings may allow you to apply a portion to reduce the principle balance on the loan sooner. One extra monthly payment per year over the life of the loan may eliminate thousands in interest and eliminate 7 years from a 30 year loan term.
Ex: 1 Consolidation refinance on a 30 year principle and interest loan.
Current home loan 7.5% $1,048.82 $150,000
A Credit card 14.99% $126.36 $10,000
B Credit card 22% $128.52 $7,000
C Credit card 24.99% $62.51 $3,000
Current total monthly payments $1,366.21
Consolidation Refinance Interest% Monthly payments Balance
New home loan 6.5% $1,099 $174,000*
A Credit card – – –
B Credit card – – –
C Credit card – – –
New total monthly payments $1,099 .00
New monthly savings $267.21
In this example the borrower will have a new monthly savings of $267.21/ month. This savings saves them thousands in interest over the life of the loan. If the borrower applied $91.58 of the monthly savings toward the principle balance reduction, the loan would be paid off in 23 years.
*I have included the average closing costs wrapped into the loan as an illustration (Average $4,000 in costs divided by $267.21 in monthly savings= 14.97 months to recover closing costs). Every loan scenario will vary, for illustration purposes only.
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