You may be tempted to consolidate your credit card and other high-interest debt into a mortgage with much lower payments. Lenders now require the homeowner to keep at least 15 percent to 20 percent equity after cashing out.
Today’s debt consolidation mortgages are more conservative than those seen during the housing boom, when lenders allowed homeowners to refinance and cash out as much as 110 percent of the value of their homes.
Consolidating the two into a new, 30-year mortgage at 4.5 percent saves about ,642 in interest.
Consolidating the two into a 15-year mortgage at 4.5 percent saves almost 0,000 more.
Too much credit card debt can get in the way of a homeowner trying to qualify for a cash-out refinance because they don’t meet the lender’s debt-to-income ratio requirement, or DTI.
In other words, their monthly debt expenses are too high compared with their income.
“Depending on the circumstances, (use equity) for big-ticket items such as tuition, a sudden illness that devastates the budget, sometimes even the purchase of an automobile when you have thought things through and you have compared that financing cost to what might be available,” he says.
The default figures shown are hypothetical and may not be applicable to your individual situation.
But on the other hand, having maxed out the limit on your credit cards also hurts your score.
This lending requirement is somewhat useless when it comes to preventing the borrower from getting into debt again because obviously it doesn’t stop the homeowner from opening new credit card accounts right after closing, Harper says.
If you are trying to get the maximum loan amount, which is generally 85 percent of the value of the home, you should expect to need a credit score of at least 700, he says.
But if your current mortgage and the amount you plan to borrow totals less than 80 percent of the value of the home, then the credit requirements are fairly similar to when buying a home, he adds.
Consolidating the two into a new, 15-year mortgage at 4.5 percent costs more per month, but less over the life of the loan.