These days, mortgage rates are significantly higher than the two and three percent rates we saw only a few years ago. While these higher rates are not preventing buyers from purchasing homes, it’s ironic that higher rates are blinding many homeowners with mounting debt from potential solutions!
Consider the following example:
“John and Jane Smith” refinanced their home a few years ago and were very happy with their 3.25% mortgage rate. They both work and the lower payments from their refinance helped them to make ends meet. However, high inflation and the poor economy has taken its toll on their budget. Their overtime and bonus income was slashed. Plus, the higher costs of food, fuel, daycare, and having to replace their car leases has resulted in their need to use credit cards to make ends meet. Adding insult to injury, as interest rates climbed, their credit card debt soared as well!
The Smith’s came to me in hopes of a solution. A home equity line of credit would allow them to consolidate their debt. However, it was not an appropriate solution, as their budget would not allow them to pay off the debt within the ten-year draw period. Their payments would skyrocket after ten years, and they would be in a worse position. On the other hand, a home equity loan would provide fixed payments until the balance was paid in full. However, there was a better solution.
I proposed we do a cash-out refinance to consolidate all of their debt. They were resistant. “Why would we give up the great 3.25% rate we already have?”
Using the actual payments for their mortgage, credit cards, and other debts, I compared what they were currently paying – plus the shortfall every month they were adding to credit card debt – to the much lower payment they would have if they consolidated all their debts into a new mortgage, even at today’s higher rates! As a bonus, I also showed them, once their finances were stabilized, how they could add money every month to their new mortgage payment, pay off their mortgage in the same amount of time they were currently on track to do, and STILL be paying less every month than they were currently with all of their debts! The plan made sense. Their financial advisor agreed. And the financial noose was removed from their necks.
People too often address their financial problems emotionally. It’s human nature. However, by working with this knowledgeable and skilled Certified Mortgage Planning Specialist®, creative and wiser solutions could be available to you as well.
Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, The Daily News, Anton Press, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.