Many homeowners have been using cash-out refinancing as a way to use their home’s equity to pay off debt quickly. Over the past months many economic and financial difficulties caused homeowners a great deal of strain and, as a result many have acquired a large amount of debt. Also, some homeowners simply have poor financial practices which have resulted in a large amount of debt that has become burdensome.
Cash-out refinancing is a way in which homeowners can get money from the equity they have built their home without adding a second mortgage. Homeowners may choose a second mortgage as an option when trying to obtain funds from their home’s equity, but this is usually only beneficial if a higher interest rate is going to be the result of refinancing. Some homeowners will use a second mortgage if a higher rate is the only option, so they can keep a low interest rate on their first mortgage, but obtain the cash they need from a second home loan.
When a homeowner is able to use cash-out refinancing, they have money from their equity and can use this money to pay off various forms of debt. Commonly, many homeowners will use this form of refinancing in order to pay off credit card obligations, which can be quite burdensome when interest rates are factored in. Many homeowners who have a hard time paying off credit cards do so as a result of only making minimum monthly payments. However, since many mortgage rates are lower than interest rates on a credit card, homeowners see cash-out refinancing as the better option when dealing with this debt.
However, financial advisors often caution homeowners about paying off credit cards with cash-out refinancing or obtaining money from this type of refinancing. Essentially, if a homeowner is using this cash-out refinancing plan as a way to pay off credit card debt, they are attaching an amount of money owed on unsecured debt to secured debt. If homeowners have poor financial habits this additional debt on their mortgage may cause trouble if they cannot pay their new home loan amount. It’s for this reason homeowners are often advised to look at their personal financial situation to make sure that this refinancing will not only be beneficial for them but that it is a final option when dealing with their credit card debt.