With the high cost of holiday gift-buying and entertaining now behind you, this may be the perfect time to get the New Year off to a fresh start by refinancing your mortgage and freeing up some money to pay off that high-interest credit card debt.
By talking to mortgage professional, you may find that taking equity out of your home to pay off high-interest debt associated with credit card balances can put more money in your bank account each month.
And since interest rates are at a 40-year low, switching to a lower rate may save you a lot of money – possibly thousands of dollars per year.
There are penalties for paying your mortgage loan out prior to renewal, but these could be offset by the extra money you could acquire through a refinance.
With access to more money, you will be better able to manage your debt. Refinancing your first mortgage and taking some existing equity out could also enable you to make investments, go on vacation, do some renovations or even invest in your children’s education.
Keep in mind, however, that by refinancing you may extend the time it will take to pay off your mortgage. That said, there are many ways to pay down your mortgage sooner to save you thousands of dollars. Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money.
If homeowners fail to take the time to thoroughly research their options through a mortgage professional and, instead, simply sign renewal offers received from their bank, credit union or other lender, they could end up paying thousands of dollars more per year in interest. Simply by shopping your mortgage with a qualified mortgage professional, you can access the banks as well as other lenders that you may not have considered, but which can often offer interest rate specials or other attractive terms.
In the current credit-crunched lending environment, now more than ever it’s important to take the time to contact a mortgage professional to find out your options.
By refinancing now and paying off your debt, you can put yourself and your family in a better financial position. It’s very important to not rack up your credit cards after refinancing, however, so set your goals and budgets, and stick to them!
Barbara Ten Bos is a mortgage professional with Dominion Lending Centres. She is providing a monthly column about mortgage options, for publication in The Observer. Email her at firstname.lastname@example.org or call 604-819-5845.