Upgrade Your Home and Conquer Your Debt

In my last newsletter, I wrote about the financial risks of waiting until interest rates drop to buy a house–and how you may end up losing money because of home prices rising while you wait (and potentially spiking when the rates do finally come down!).

This week we are going to dive into strategies and misconceptions around refinancing a mortgage and debt reconfiguration. It may sound complicated, but trust me, I’ll walk you through it, and it could save you a ton of money.

What is Refinancing?

Mortgage refinancing is the process of replacing your existing mortgage with a completely new one.  This is typically done to secure a better interest rate or loan term.

So if you choose to buy a house now (before prices rise higher), you don’t have to stay married to the same mortgage forever! That brings us to our first common misconception about refinancing:

Many people wrongly believe that interest rates have to come down a full 1% or more for a refinance to save you money. Even a seemingly small decrease of .25% can translate to significant savings over your loan term. Every fraction of a percentage point saved adds up to thousands of dollars you keep in your pocket.

Considering the Costs of Refinancing

There are initial fees associated with refinancing, but focus on the long-term benefit of lower monthly payments. These savings usually outweigh the upfront costs. Additionally, trying to time the market for the absolute lowest rate can be risky. Rates can fluctuate, and sometimes waiting can cost you more in the long run.

Now let’s shift our focus to an even scarier topic! DEBT! (But stay with me, there is hope and opportunity to relieve your debt stress).

Often, people are so focused on hanging on to their low mortgage interest rate that they lose sight of the big financial picture, including the cost of other (more expensive) debt that they are carrying! Personal debt, credit card debt, car loans, etc… are all very high right now–credit card debt in the U.S. is at an all-time record high.

Yes, it was great that you got a 3% interest rate on your mortgage during covid, but if you have credit card debt at 25% interest or car loans at 12% interest rates or home equity lines at 10%, etc… you may be missing out on serious savings! The interest you are paying on all of your debt is referred to as a blended rate.

So What Does this Have to do with Buying a Home or Not?

Selling your home and buying a new home offers a strategic opportunity to consolidate your debt and create a winning financial plan. Let’s walk you through an example.

The Story of a Debt Consolidation Power Move

John and Debra bought their first house in 2017 and then refinanced in 2021 with a fabulous 3% interest rate. They would really like to upgrade to a nicer neighborhood, more yard, and another bedroom, but they can’t stomach the idea of giving up theri 3% rate for 6.99%.

Besides their mortgage, they are also paying off two car loans, some credit card debt, and a home equity line that they took out to make some much-needed improvements to their home.

Even though their mortgage is only $3000 a month, when you add all of the other debt payments, it’s a total of $5200 a month.

John and Debra decide to talk to a professional to see if they could qualify to buy that next home they have been dreaming about. They learn that not only can they buy the next home, they can actually take some of the equity that they built up in their first home, pay off all of their debt, and FINALLY buy the bigger, nicer house they have been wanting with a monthly payment of $5200. The SAME amount they were paying before only now they can write off all of the interest on their taxes!

And BONUS, when the rates do come down, John and Debra can refinance their home loan and get their monthly payment even lower.

Seek Professional Guidance: Navigate the Options

I have qualified professionals on my team who can help you analyze your specific situation and determine the optimal debt consolidation strategy. They can also help you explore different loan options and help you discover if you are in a position to be able to buy your dream home!

We are working now with upgraders, downsizers, and first-time homebuyers who are all discovering exciting new possibilities!  

Call or text me today, my team can help! 707.217.3745 And if you want to take a peek at that bigger home on the market, let’s go take a look!