How Debt Consolidation and Cash-Out Refinancing Work
When you have multiple debts, such as a home mortgage and car loans, you may want to consolidate all your loans into one to simplify your payments. This is called debt consolidation.
Alternatively, if you have a lower interest rate on your mortgage, you may be able to refinance your home mortgage. You can do this by taking out the equity in your property and using the money to pay off your other debts. This is known as a cash-out refinance.
Debt Consolidation
Debt consolidation loans or debt management plans allow you to have a single payment for your debts. You also have the option to pay off your debts in installments. As your debt is reduced, you have more money to start saving.
- Advantages: Debt consolidation can help you save money on interest. Instead of paying multiple lenders, you only have to pay one lender. This can help you keep your credit score if you have trouble paying your bills.
- Disadvantages: Although debt consolidation can help you save money, it can also cause you to put out more money in interest. It may take a long time to repay the debt, so if you are not disciplined enough to keep up with your repayment plan, you may end up with higher debts than you had before.
Cash-Out Refinancing
Cash-out refinancing is a standard option when you want to lower your monthly mortgage payment, but you also want to increase the value of your home. With this option, you can get cash out of your home or a loan for the difference between the mortgage payment and your home’s new value.
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Today's Mortgage Rates- Advantages: You do not have to go through debt consolidation since you can increase the equity in your home. This prevents you from shouldering more debt in the long term.
- Disadvantages: You may still end up paying more in interest. Also, you can only use the additional money for paying off other debts. It will not help you save money. If you have a home equity line of credit, you can use the additional money to pay off the line of credit instead of paying off other debts.
Requirements for Cash-Out Refinancing
Before you go for cash-out refinancing, you need to meet the following requirements:
- You should have a mortgage of at least twenty years.
- You should have a good credit history.
- You should have enough equity in your home to get a cash-out to refinance.
- In some cases, the lender may ask for at least twenty percent equity in the house.
- You should have saved for your taxes and insurance.
Your Mortgage Experts in Oak Lawn IL and Beyond!
If you want to consolidate your debt or refinance your home, you can consider either debt consolidation or cash-out refinancing. Both options may help you save money by bringing down your monthly payments. However, you need to consider your financial situation and choose the best option for you.
MidAmerica Bancorp, Inc. provides a diverse choice of mortgage products for house purchasers in Oak Lawn, Burbank, Hickory Hills, Chicago, and throughout Florida, Illinois, Michigan, Wisconsin, and Indiana, regardless of their financial status. Get in touch with us today at (708) 237-4050 if you’re looking for the best refinance rates available.
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