How high are the debts
Since there are such high debts, the interest rate is also usually high, you can spend $ 1000 per month in interest only.
The fact of having bought one living around 10 years ago would be considered as an example.
Where on that occasion the house costs a total of $ 100,000 with a 30-year fixed-rate mortgage.
Currently, that same house costs $ 175,000. He left a 20% discount at the time it was purchased.
Now he owes approximately $ 70,000. Therefore, the total capital is $ 125,000.
Less than $ 12,000 to $ 15,000 in real estate agent fees and transfer taxes that would be incurred when selling.
Obviously with this amount of money you would pay all your debts.
However, the question would be: Should you refinance your home with a mortgage to pay off the debt?
Should you refinance the entire loan at a lower interest rate, reducing your monthly payment and extracting money beyond what is necessary to pay off your debt?
These are the steps you must follow to determine the best financial path to take in such a situation.
What are the interest rates on current debts?
There are two main factors that determine the interest rates of your debt: your credit record and whether the debt is safe or not.
We can say that mortgages and car loans generally have interest rates ranging from 2 to 4%.
On the contrary, a personal loan from a bank or a credit card could have an interest rate of up to 25%.
In general, the lower your credit score, the higher your interest rates for any type of loan.
What debts should I refinance?
If you lose your job or apply for a refinance loan that you cannot pay, you are likely to lose your home.
Instead, you could declare bankruptcy due to excessive personal debt. Why could I declare it that way?
You can do this because, in most states, the law allows you to protect part of a principal residence by filing bankruptcy.
As a rule, you should not refinance the debt that you can declare bankruptcy so as not to lose a mortgage.
What type of mortgage should I refinance?
15-year mortgages will have interest rates that are between half and 1% lower than 30-year mortgages.
Because the repayment period is faster and reduces the risk to the bank.
15-year loans should only be taken if:
- You can pay the highest payment
- The extra money that is being immobilized is not necessary for anything else.
In conclusion, a plan to consolidate the debt with a refinanced mortgage seems like a good idea.