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The pros and cons of a refi
The upside of a refi is that you should end up with a much lower payment then you now have. The downside is that you’ll have a whole new mortgage for a new fifteen or thirty years. However, it should come with a much lower interest rate. For example, if you took out a conventional 30-year mortgage credit 12 years ago, you're probably paying at least 5%. APR. in comparison, you should be able to get a new mortgage today at 3.5% or better. If you think you'll be in your house for less than five years, you could choose five-year ARM (adjustable rate mortgage) and save even more.
A HELOC is very flexible
In comparison, with a HELOC, you don't take the whole amount all at once. It's a line of credit where you take advances. HELOCs typically have a fixed rate for all the advances taken within the first 30 days. Its monthly payment is usually 1% of your outstanding balance and its term will be 15 years. These years will be split as follows - a 5-year advance period (when you can take cash advances) and then a 10-year amortized repayment period.
A second mortgage
A second mortgage is much like a refi in that you get all the money upfront and then have a fixed number of years to pay it back, which is typically seven or 10. Of course, if you sell the home before you pay off that second mortgage, you will have to pay back that money as well as whatever you owe on your first mortgage.
The difference in interest rates
As of this writing, it was possible to get a thirty-year fixed refi with an interest rate as low as 3.343% or a 15-year fixed refi for 2.75% - both with zero points.
In comparison, a 5-year HELOC would have an APR of around 3.99% (from a credit union where we live). And you might be able to get a second mortgage with an interest rate as low as 2.375%.
Pay off your debts
Whether you choose a refi, a second or a HELOC one of the best things you can do with the money is pay off your debts, especially if you're carrying a lot of credit card debt. This generally makes good sense for two reasons. First, you will have a much lower interest rate as your credit cards may have interest rates as high as 50% to 20%, while as you have seen, you could get a second mortgage or a HELOC with an interest rate of less than 3%. And second, you should have much lower monthly payments, as you will have many more years to pay back the loan.
If you have don’t have enough equity
If you've been in your home for less than 10 years, you may not have any equity. This is because during those first 10 years, most of your monthly payments are used to pay interest and not to reduce your balance. In this case, you may want to contact us. We’ve helped our clients consolidate their debts and save thousands of dollars in the process. We usually help them become debt free in 24 to 48 months and with a payment plan they can afford. Contact us today for more information on debt consolidation through debt settlement.