In this episode of Real 101: The Home Buying & Selling Show, Mortgage Broker Tracey Brock discusses mortgage financing and talks about how refinancing to pay off debt works.
Why People are Refinancing to Pay Off Debt?
There are many reasons why clients are refinancing to pay off debt. They can, for example, try to minimize their monthly expenses if they are worried about them or to save interest payments.
Refinancing to pay off debt is also a good way for someone to take care of outstanding debts in one go, as opposed to paying for each debt individually. This allows the person to save some money on a monthly basis.
This allows people to reduce their monthly expenses by about 50-60% in average and opens a whole new can of opportunities. Typically, if you feel you’re going to use the credit card which you accumulated the debt on again, you can put that money on something that you wouldn’t normally spend on your credit card. If the credit card debt is more circumstantial, you can start putting the money down towards your mortgage. Finally you can simply put the money aside and save for a vacation.
However, a credit card debt is not the only reason why a homeowner might choose refinancing to pay off debt. This can be done to invest in another property, for example.
Does Refinancing to Pay Off Debt Extend the Life of a Loan?
In theory, this is true. It does take longer to pay off debt if you refinance. This is because refinancing increases the amortization and adds to your mortgage so it extends the life of your mortgage as well.
There are, however, ways to go around this. One of them is to decrease the rate of amortization when you refinance. Another way to mitigate this is by taking the extra money back into the mortgage, instead of the credit card. Finally, you can also revisit what you are doing with your mortgage when the time comes for renewal.
Watch this episode to learn more about refinancing to pay off debt.
For more information on mortgage financing contact:
Website: Dominion Lending Centres
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