Is It Smart to Refinance Now to Pay Off Debt?
Many people feel that their best option to pay off debt may be cashing in on their investments. This often includes their 401k and pensions or other retirement accounts. Of course, this would never be someone’s first choice, but it can feel like there is no other way when trying to pay off credit card debt or pay off high interest debts. But there is good news! It may make sense to refinance your mortgage instead. If you qualify for a VA loan, you have unique options when struggling with debt. You may qualify for a cash-out refinance for up to 100% of your home’s value to consolidate your debts into a new VA mortgage! Getting a cash-out refinance today may be your best option.
No Money to Pay Off Debt?
It’s common to feel nervous about using a credit card for big purchases and high bills. That’s because credit card debt is punishing, and can put people into very high debt ratios very quickly. When you have debt, using a credit card to pay for that debt feels even worse. In a way, you’re risking getting into more debt even as you try to pay off what you owe.
That’s why people turn to cashing in on investments, pensions, and 401k accounts. Paying for that debt with cash feels like a safer, smarter move. You know you’ve invested and saved for a reason, and even though this wasn’t your original plan, paying off debt is a great use of your savings. But the hardest thing about it is that you are spending money that you had been counting on for retirement. Choosing between having retirement funds and having debt can feel impossible. But there is hope!
Before you withdraw funds from those accounts, look into refinancing your home loan. Refinancing doesn’t cost you in the same way – in fact, cash-out refinancing can help you save money! Plus, like the name suggests, it gives you cash to pocket after paying your closing costs! With your VA benefits, you can often lower your monthly payments on your mortgage with a cash-out refinance that pays off high interest debt.
You Should Not Cash Out Your 401k to Pay Off Debt
When you cash out on investments, retirement accounts, and 401k accounts, you are taking away from your future. 401k accounts are especially unforgiving. In most cases, you have to pay high taxes on whatever you withdraw if you are cashing out before you are fifty-nine and a half. And the IRS is likely to penalize you for withdrawing early, which loses you even more money.
In some cases, you could get those taxes and fees waived, but this is usually only in true emergencies. Even then, many financial planners will tell you to try getting a loan first.
With VA benefits, taking away from your future doesn’t have to be the answer for you! We encourage you to look into ways your home loan can be used to pay off debt. You may be worried about your credit report when considering a refinance, because having high balance credit card debt sometimes leads to a lower credit score. That makes it more challenging to get a loan in the first place. But at HomePromise, we are known to approve people with low credit scores, so don’t give up! Later in this article, we’ll explain how to find out if you qualify with us!
How to Use Equity to Pay Off Debt
You may have lots of home equity since homes have appreciated in value a lot over the last few years. In some cases your mortgage may be much lower than your home value. That home equity is not doing much for you if you don’t access it. Paying off debt with your home equity makes sense for many people, especially when your debts have high interest rates. Refinancing with HomePromise gives you access to your home equity through a cash- out refinance.
How to Refinance Your Home to Pay Off Debt
While home equity loans can be a good option, an even better choice is to refinance. It’s simpler, because you’re changing replacing your current home loan with a new one instead of adding another. It gets you cash, just like a home equity loan but, more importantly, new first mortgage cash-out refinances typically have lower interest rates than home equity loans, which could lower your minimum payment! In principle, a cash-out refinance is a lot like a home equity loan but in many cases you can get more cash out with a new first mortgage cash- out refinance. Based on how much of your home you’ve paid off and your current mortgage balance, you’ll receive more money than you presently owe on your home, so you can pocket the difference.
But if you have significant debt, many lenders will deny you for any kind of loan. As we said before, high credit card debt may lower your credit score, and lenders also consider your debt-to-income ratio when qualifying you for a loan. Typically, they like to see very a manageable amount of debt when compared to your income. If this doesn’t sound like you, don’t give up! HomePromise is the best choice for a refinance to pay off debt because we have been known to approve people with challenging credit histories. You may even be able to use the cash you receive to make home improvements.
Cash Out Refinance with HomePromise
When looking for a lender for your cash-out refinance, look to us first! At HomePromise, we are committed to understanding your unique situation. We will walk you through how to refinance and what you need to know. Plus, we have been known to lend to people with credit scores as low as 580. Prequalify with us today to get a sense of what we may be able to do for you.
Even if you are not sold on a cash-out refinance, we recommend you call now at 800-720-0250 to speak with our home loan experts! We are here to answer your questions. Applying with us is always free – that’s the HomePromise Way.
Cash Out Refinancing for Home Improvements
You may have been contemplating home improvements for a while, or maybe more time at home during the pandemic got you thinking about ways you can update your house. Either way, you’ll need funding for these projects.