Mortgage Refinance To Pay Off Debt: Do It Right


If you are weighed down by debt and you can’t seem to find a way out of your quagmire, mortgage refinancing to pay off debt is a feasible option. You can cash out on your home equity and start afresh on the right footing.

As much as the short-term gains of a mortgage refinancing are worth the effort, it is vital to do it right since reducing your home equity puts you at risk of losing your home in case of an unexpected occurrence. Hence you should consult a people-centred mortgage originator to get professional assistance.

The best mortgage refinancing complies with the below conditions: –

 Reasonable Break-Even Period

A break-even on a mortgage refinance is a fundamental component that you should get right at the onset of refinancing negotiation with your mortgagee. There is an array of factors that determine the break-even period such as closing costs, the new potential rate, your current interest rate, and the proposed refinancing period.

Also, you should project your principal mortgage insurance (PMI) monthly.

Calculating a defined rate by your loan balance derives the PMI. It’s the highest at the inception of your policy and gradually declines as your equity increases. The PMI is debt insurance that protects the mortgagee from losses that could result in the lender forfeiting the right to collecting the mortgage debt.

After calculating the total savings on a fixed-rate mortgage refinancing, you should determine your projected savings after tax. The number of months for breaking even after PMI deduction and taxes should outweigh the risk of forfeiting your home equity.

Conclusively, you should be ready to stay in your home for a period that exceeds the break-even timeframe. By doing it, you will have benefitted from both the monthly savings and the long run recouping of your closing costs.

 Sound Reasoning

If you want to simply change the period of your mortgage, the main factor to consider is that you should be able to save on the monthly payments as well as the long-term period otherwise a refinancing will be pointless, this is borne out again and again in PHH mortgage refinance reviews.

In the meantime, if you are after cash-out refinancing, the cash derived from the procedure should be reinvested in areas that benefit you and increase the value of your assets. This will cushion you from the adverse effects on your creditworthiness portfolio when your equity is low, and the level of debt is high. For instance, you can use some of the cash to remodel your home to raise its value and restore your equity, you can purchase more assets or pay off high-interest debts to increase your disposable income and bolster your debt-to-income ratio.

On the contrary, cashing out on refinancing to fund lifestyle and luxury events that don’t boost your asset portfolio is not advisable.

 A Good Lender

Long-term financial commitments such as mortgage plans are difficult to terminate since the implications could be worse than your predicament. Hence, you should shop keenly and rely on the experience of other mortgagors who have sought a similar service. The PHH Mortgage Refinance reviews prove that PHH Mortgage offers the best professional services that you can rely on. Based on the ethos of openness, you are guaranteed to get a clear picture for the duration of your refinancing which can enable you to make informed plans.

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Potentash Founder. A creative writer and editor at Potentash. Passionate about telling African stories. Find me at [email protected]