By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929
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Mortgage refinancing is the best tool for consolidation, especially today because of record-low interest rates. If you're a property owner and you need to reduce debt, I encourage you to explore this option.
The primary reason refinancing is the gold standard is because the mortgage is secured against your property, which allows you to pay the lowest rate possible, which translates into very low payments.
Refinancing also has enormous benefits both in the short and long term.
In the short term, a person can recuperate more cash flow each month, which makes living more enjoyable and allows room for savings.
In the long term, a person pays less interest (if at all) on the debts that would have not only been more expensive but for many, impossible to pay off.
Think of credit cards. Credit card companies compound interest daily on any outstanding balances. This means that from the moment a person makes their minimum payment all the way to their next payment date, interest is compounding every twenty-four hours.
While the “minimum payment” may be low, it's difficult for a person to get out of credit card debt making these payments because the compounding formula prevents them from getting ahead of the payment cycle.
Ultimately, refinancing removes this tough formula of interest calculation altogether. Instead, the mortgage gets set over an amortization period for a specific term (i.e. 5 years), which drastically reduces payments.
Now you may want to point out that amortizing debt out over a longer period time equals interest payments. You are correct. However, there are a couple of things to consider. For one, consider cash flow. How much cash flow do you now available on a monthly basis? Two, can you use your prepayment privilege to pay down debt faster and without interest? Yes, you can.
Prepayment terms allow you to increase your payments and make lump sum payments at no extra cost.
For example, if you consolidated a credit card of $10,000 into your mortgage, you could pay off that credit card in two years without interest if you increased your mortgage payments $416 each month. If you left that $10,000 debt on your credit card at 19.9999%, it may take you 2.6 years and over $2,700 in interest to pay it off and that's assuming you haven't made any further purchases.
So as you can see, there are ways you can use refinancing to not only save yourself money each month but also get around interest payments.
From a cash flow perspective, being able to amortize your debt over a longer period of time creates enormous opportunities for a reduction of expenditures. Many times, refinancing at a low interest rate will reduce your mortgage payments even with the new debt added in.
Why not explore mortgage refinancing and debt consolidation today?
Feel free to call or write.
Sarah A. Colucci
Mortgage Agent Lic. M14000929
Mortgage Edge, Broker 10680
Direct: (647) 773-4849