By Attorney Daniel Hamad

Though mortgage rates have gone up over the past few months, we’re still seeing rates that are some of the lowest that have ever been available.  A 30-year fixed mortgage is still available in the low 5% range, and a 5/1 ARM may be as low as 4%.  This has been great for the traditional refinance industry.  Most people have refinanced their primary home loans and their home equity lines to take advantage of these rates – but that’s not all they can do for you.

These low rates lead to some interesting possibilities if you’re in debt – and really, who isn’t?  We all have credit cards, car loans, student loans, and who knows what else.  Maybe we even just want to buy a vacation house.  Few people consider that when they refinance, assuming the availability of equity in the home, they can take out more than just enough to cover their mortgage – they could also take out enough to cover their schooling, their car, or anything else they may have or need.  With rates so low, now is a time that you can pay for your higher priced loans with the proceeds from a refinance.  In fact, doing so won’t even hurt your Debt to Income ratio, since you’re paying off one debt with another debt.

Depending on how you choose to proceed you may be required to take the proceeds as a direct debt payoff, rather than simply as cash.  This is a little more complicated as the escrow agent will have to know the actual balances of each debt at the time of closing (for secured debt such as a mortgage or car loan), or you may have to mail out checks (in the case of unsecured debt such as credit cards) , but it’s less likely that you will incur a penalty in the interest rate because the equity is going directly to the payoff of another debt.  If you take cash, on the other hand, you’re taking out more debt.  Depending on your financial situation this may or may not make sense for you – talk to your mortgage broker for details.

As always, be careful when you choose to take out a loan.  Make sure you can afford it.  But if you want to save a few bucks, or make payments simpler, you should consider a cash-out (or debt-reduction, for lack of a better term) refinance.

If you’re looking for ideas and advice, or need an attorney for a closing, feel free to contact the Hamad Law Firm, LLC, today.