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Is It Time That You Refinanced Your Mortgage & Consolidated Your High-Interest Debts?

Is It Time That You Refinanced Your Mortgage & Consolidated Your High-Interest Debts?

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Some people want to refinance their homes in order to buy a new boat, upgrade a kitchen or send their kid to college. However most apply to refinance their mortgage in order to stay on top of their financial goals. Life becomes much easier (and cheaper!) when you consolidate high interest credit cards and other loans into ONE lower, monthly mortgage payment.

Even if a penalty must be paid to break a mortgage term early, it’s almost always more beneficial to break it in order to pay off those higher interest debts – Especially when mortgage rates are as low as they are today. The usual debts that get paid off by refinancing and consolidation include:

– credit cards or line of credit
– car loans
– personal loans
– consumer proposals
– and any other debt that is costing you monthly in both payments and high interest

As unappealing as the task may sound, many people find it useful to write out a detailed list of their debts so that they can target the ones that are costing them the most on a monthly basis. For example, credit card and credit line lenders charge over 10% interest on average, making those debts a top choice to pay off when you refinance to consolidate your debt.

Although your mortgage might have a five-year term, it’s rare for homeowners to stay with the same mortgage for that long. The average homeowner refinances their mortgage every four years, because paying off your present mortgage and taking out a new one can mean huge savings over time.

Let’s take a look at just how much you could be saving overall when consolidating your debt by refinancing your mortgage along with how much you could free up your cash flow each month.

If you have an existing mortgage for $175,000.00 with an interest rate of 5.75% – your monthly payment would be $1,093.79.

For illustration sake, let’s also say you owe $7,500.00 on a credit card with an interest rate of 19.75%, a car loan worth $15,000.00 with an interest rate of 6.5%, a department store credit card which you owe $3,500.00 with a sky-high interest rate of 28% and a line of credit maxed out at $20,000.00 from that kitchen reno you did last fall. With all of these monthly payments combined, you would be paying about $2,118.79 per month – and a large part of that would be paying off interest, not just the principle of what you owe. These kinds of payments can really stress you out financially, leaving you pinching pennies, paycheck to paycheck.

If you rolled all of that outstanding debt into your mortgage by refinancing it – assuming you have enough equity in your home to do so with the full amount – Your monthly payments would drop to around $1,329.74 per month. Drastically improving your cash flow & saving you a ton on interest in the long run, because your overall interest rate is now only 5.35% across the board, instead of varying rates as high as 28%.

Mortgage rates are at historically low levels. If you have available equity in your home, a debt consolidation mortgage can be extremely beneficial for your budgeting, monthly cash flow and bottom line. When you use your equity to pay off high-interest credit cards and other debts, you eliminate the stressful routine of paying many different monthly bills – and you stop accruing high interest on all of them.

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