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Cash Out Refi vs Home Equity Loan – Which One is Better?

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Cash Out Refi vs Home Equity Loan – Which One is Better?

Today we are going to discuss the difference between a cash out refi vs home equity loan. In both of the following examples there are a lot of similarities. This includes identical houses, similar lifestyles, as well as $465,000 in debt. Let’s take a closer look at how Jack and Jane can achieve monthly debt relief both quickly and easily.  

Jack Jane
Loan Type Cash Out Refinance Home Equity Loan
New Loan $295,000 (mortgage, auto,  as well as credit cards) $90,000 (auto and credit cards)
Interest Rate 7% 9%
Old Monthly Payment $2,700 $2,700
New Monthly Payment $2,000 $2,000 (Home equity loan payment $800 + Current mortgage $1,200)
Monthly Savings $700 $700
New Debt $720,000 ($2,000 per month  x 360 payments) $476,000 ($2,000 per month)

To clarify, both Jack and Jane both had a monthly savings of $700. However, their lifetime debt is very different. In the end, Jack will pay $244,000 more than Jane. As a result, Jane will get to enjoy life a lot more because her mortgage payment wasn’t altered. 

In conclusion:

To sum it up, both a cash out refi and a home equity loan create a monthly savings of $700. However, a cash out refi comes with more new debt that will follow you for a longer period of time. Which path would you take? Keep in mind that times will change as well as available products! However, the differences between a cash out refi vs home equity loan will remain the same. That is why it is so important to do your research along with listening to the math in order to live your best life.

Watch our most recent clip to discover more and contact us today to find out more! We are here to help you get on the right path for your future! 

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How to Pay Off Your Debt FAST and Enjoy Life MORE

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Debt can weigh you down, but with the right plan, you can pay off your debt fast and enjoy life more. It’s all about finding the right strategy to cut your interest rates and speed up your payments without changing your budget. Let’s walk through how you can do this.

Step 1: Reposition Your Debt to Save Money

One of the easiest ways to pay off your debt fast and enjoy life more is to move high-interest debt to a lower interest option. Think of it like this: if you’re paying 19-29% interest on credit cards, that’s a lot of extra money going to the bank. But, if you can move that debt to something with a lower rate, like a home equity loan at 8.5%, you’ll pay less in the long run.

For example, let’s say you have $21,000 in credit card debt spread across three cards:

  • Card 1: $7,000 at 19% interest, with a $184 payment
  • Card 2: $7,000 at 24% interest, with a $211 payment
  • Card 3: $7,000 at 29% interest, with a $244 payment

Altogether, you’re paying $641 a month. If you keep paying at this rate, it will take over four years and cost you about $34,320 to pay off that $21,000.

Step 2: Use a Home Equity Loan

Now, imagine moving that $21,000 to a home equity loan at 8.5% interest. With the same $641 payment, you would pay off your debt in just three years and four months. Not only would you save 14 months of payments, but you’d also save around $9,000 in interest!

By taking action and repositioning your debt, you can pay off your debt fast and enjoy life more. That’s money back in your pocket, and fewer months spent worrying about payments.

Step 3: Use 0% Credit Cards for Faster Payoff

Another smart strategy is to transfer your credit card balances to 0% interest cards. Many of these cards offer an introductory period where you don’t pay any interest for up to 18 months. That means every dollar you pay goes directly toward paying off your balance, not interest.

Imagine moving your $21,000 balance to a 0% card. You keep paying $641 a month, and for the first 18 months, it all goes toward paying down the debt. You’ll knock out a big chunk of what you owe before the interest kicks in, helping you pay off your debt fast and enjoy life more.

Step 4: Stick to Your Plan

Once you’ve repositioned your debt, the key is to stick with it. Keep making the same payments, and don’t add new debt. It might feel like a slow process at first, but you’re saving time and money in the long run.

By using the same payment but shifting your debt to a lower interest rate, you can shave months or even years off your payoff schedule. And that’s how you pay off your debt fast and enjoy life more.

Conclusion

Paying off debt doesn’t have to be a burden. With simple steps like moving to lower interest rates or using 0% credit cards, you can pay off your debt fast and enjoy life more. It’s about being smart with your debt, sticking to a plan, and letting interest work for you, not against you.

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Cash-Out Refinance: Avoid the $250,000 Blunder Most People Make

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Are you thinking about a cash-out refinance? While it might seem like a great idea to free up some cash each month, it creates further financial strain in the future. Therefore, before you jump in, let’s look at the numbers in order to see how this decision could cost you a whopping $250,000 over time. Let’s begin by looking at the average debt provided by Dave Ramsey. 

What is a Cash-Out Refinance?

To clarify, a cash-out refinance allows you to take out a new mortgage for more than you currently owe, as well as pocket the difference. It’s tempting if you’re looking for some extra cash or want to consolidate debt. However, in today’s market, with interest rates climbing, you might be setting yourself up for a costly surprise.

Cash-Out Refinance
New Loan Interest Rate Monthly Payment New Total (Current Payment $2,669 – Cash-Out Refinance $1,962)
New Mortgage Balance $295,000 7% $1,962 $707 (Monthly Relief)

Cost of Cash-Out Refinance
Monthly Payment Remaining Number of Payments Cost Over Loan Life Additional Money Out of Your Pocket!

 (Refinance Cost $706,550 – Total Cost Previously $454,591 
$1,962 360 $706,550 $251,959

What is a Home Equity Loan?

A Home Equity Loan, on the other hand, is a type of loan where you borrow against the equity you’ve built up in your home. To put it another way, it’s a second mortgage with a fixed interest rate, a set repayment term, as well as consistent monthly payments. Unlike a HELOC, which acts like a credit line, a Home Equity Loan gives you a lump sum upfront that you repay over time. Therefore, it is a stable option for consolidating debt or financing big expenses.

Home Equity Loan
New Loan Interest Rate Home Equity Loan Payment  + Mortgage New Total (Current Payments $2,669 – Mortgage with HEL $1,959)

(Credit cards and auto loan paid off)
Home Equity Loan  $57,500 9% $793 + $1,166 = $1,959 $710 (Monthly Relief)

Cost of Home Equity Loan
Monthly Payment Remaining Number of Payments Cost Over Loan Life + Mortgage Additional Money Out of Your Pocket!

(Home Equity Loan Cost  $461,249 – Total Cost Previously $454,591 
$793 105 $83,287 + $377,962 =

$461,249

 $6,658

Monthly Payment Relief: What Does It Really Cost?

Sure, both options give you that monthly payment relief you’re looking for, however, only one of them doesn’t mortgage your future. Therefore, by choosing the home equity loan over the cash-out refinance, you will not only save big now, but in the long run as well. 

Out of Pocket Difference Between the Two Options 
Cash Out Refinance $706,550 $245,301
Home Equity Loan $461,249

Bonus: Short-Term Impact

Some people say they won’t keep their mortgage for 30 years. However, the financial impact of a cash-out refinance can be seen after just one year! 

BONUS: Cash Out Refinance: Cost By Year 
Year Cost 
First Year $12,975
Third Year $26,987
Fifth Year $42,894
Tenth Year $80,679 + $11,898 = $92,577

Your Best Option in Today’s Market

In today’s market, a home equity loan is often the better choice. It not only provides the monthly relief you need, but it also doesn’t cost you a fortune in the long run. Remember, it’s not just about getting by today, it’s about protecting your future, too. 

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What Is Debt?

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Debt is when you borrow money from someone and promise to pay it back later. To put it another way, people and businesses use debt to buy things they can’t afford right now.

How Does It Work?

First, Borrowing Money: You ask for money from a lender. This could be a bank, a friend, or a company.

Second, Promise to Pay Back: You agree to pay back the money over time. This is called a loan.

Finally, Interest: The lender charges a fee for letting you borrow money. This fee is called interest and is a percentage of the loan.

Types of Debt

Credit Cards

Credit cards let you buy things now and pay later. They are handy; however, they come with high-interest rates if you don’t pay off the balance each month.

Mortgages

A mortgage is a loan to buy a house. It’s a big loan that you pay back over many years. The house is the collateral, which means the bank can take it if you don’t pay.

Student Loans

Student loans help you pay for college. You pay them back after you finish school and start working.

Car Loans

Car loans let you buy a car. You pay back the loan over a few years. The car is the collateral for the loan.

Good vs. Bad 

Not all debt is the same. Some can be good, and some can be bad. Let’s see the difference:

Good Debt

This will help you grow your wealth or income. For example:

  • Student Loans: Help you get an education and a better job.
  • Mortgages: Help you buy a home, which can increase in value over time.
  • Business Loans: Help you start or grow a business.

Bad Debt

This doesn’t help you grow. Instead, it can hurt your finances. For example:

  • High-Interest Credit Cards: These can be hard to pay off.
  • Payday Loans: These have very high fees and can trap you in a cycle of debt.

How to Manage Debt

Managing your finances well is important. Here are some tips:

  • Make a Budget: Know how much money you have and where it goes.
  • Pay On Time: Always try to make payments on time to avoid extra fees.
  • Pay More Than the Minimum: This helps you pay off debt faster.
  • Avoid Unnecessary Debt: Think twice before borrowing money for things you don’t need.

In Conclusion

Debt is a way to borrow money and pay it back later. It can help you reach your goals if you manage it well. Always remember to borrow what you can afford to pay back. With smart choices, debt can be your friend, instead of your enemy.

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Is a Cash Out Refinance a Smart Thing to Do?

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Today we are going to discuss whether or not a cash out refinance is a smart thing to do. To clarify, a cash out refinance is a way to use the equity in your home to get the money you need. It can be a smart move, however, you need to understand how it works. Let’s break it down.

What is Cash Out Refinance?

Cash out refinance lets you replace your old mortgage with a new one. The new loan is bigger, and you get the difference in cash. This can be handy for many reasons.

How Does It Work?

  1. Get a New Loan: You take out a new loan for more than what you owe on your home.
  2. Pay Off the Old Loan: The new loan pays off your old mortgage.
  3. Pocket the Cash: You get the extra money to use as you wish.

Reasons to Consider Cash Out Refinance

Home Improvements

You can use the money in order to make upgrades to your home. This can increase your home’s value and make it more enjoyable to live in.

Pay Off High-Interest Debt

Credit card debt can be costly. Using a cash out refinance to pay off high-interest debt can save you money over time.

Investment Opportunities

Some investors use the cash to buy another property or invest in other opportunities. This can help grow your wealth.

Emergency Funds

Life can be unpredictable. Therefore, having extra cash can provide a safety net for emergencies.

Things to Consider

Interest Rates

Look at the interest rate of the new loan. If the interest rate on the new loan is lower than your old one, you can save money. However, if it’s higher, then you need to think twice before diving in.

Loan Costs

There are fees in order to get a new loan. Make sure that you understand all the costs involved.

Loan Terms

Check the terms of the new loan. Is it a 15-year or 30-year loan? Keep in mind that shorter loans have higher payments but save money in the long run.

Risk of More Debt

Taking out a larger loan means more debt. Be sure you can handle the new payments.

Is Cash Out Refinance Right for You?

Pros

  • Access to cash for various needs
  • Potential to lower interest rates
  • Can increase your home’s value

Cons

  • More debt to repay
  • Possible higher interest rate
  • Closing costs and fees

Final Thoughts

A cash out refinance can be a smart move if done right. Not only can it provide funds for a variety of things, but it can also help you manage debt. However, it does comes with risks. Therefore, make sure to weigh the pros and cons before making a decision. If you have questions, consider talking to a financial advisor. They can help you decide if it’s the best choice for you.

Contact Us Today!

Do you need help navigating your financial future? Contact us today!

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