Tag Archive for: HELOC

The Shortest Refinance Boom EVER – Good or Bad For You?

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For just a couple of weeks, we had what might be the shortest refinance boom ever. Interest rates dipped into the 5% range, which got everyone talking about cash-out refinances to manage their debt. But was it really the best option? Let’s break down why this might have been more of a blessing in disguise.

Why a Cash-Out Refinance Might Not Be Right for You

When rates dropped, many homeowners considered a cash-out refinance. The goal was simple: consolidate debt and make monthly payments easier. But for most people, this wasn’t the best option. Here’s why:

  1. You Lose Your Good Mortgage Rate
    If you have a mortgage with a low rate from just a few years ago, refinancing could double or even triple that rate. This means you’d be paying more on debt you’ve already been handling well.
  2. Higher Total Interest Over Time
    A cash-out refi stretches out your debt, adding interest over more years. So, even if monthly payments seem smaller, you’re likely paying more to the bank in the long run.
  3. Better Alternatives Exist
    Instead of locking into a higher rate for all your debt, other options could work better for managing specific debts, like credit cards or car loans.

Better Options for Your Debt

Refinancing isn’t the only way to free up cash and simplify your payments. These alternatives can put more money back into your life without adding to your mortgage balance.

1. Fixed-Rate Home Equity Loans

A home equity loan lets you tap into your home’s value without affecting your current mortgage rate. Unlike a HELOC, which is often adjustable, a fixed-rate home equity loan keeps your rate steady and predictable.

2. Balance Transfers to 0% Credit Cards

Got good credit? Consider moving high-interest credit card debt to a 0% APR balance transfer card. Even with a small transfer fee, the savings can be big. For example, transferring $10,000 at 25% interest to a 0% card could save over $2,000 in interest a year.

Use This “Break” to Get Financially Ready

With the refi boom gone (and possibly not coming back anytime soon), it’s a good time to look at other ways to get into better financial shape. Here are a few steps to consider:

  1. Improve Your Credit Score
    Aim for a 700+ credit score. This isn’t just about looking good on paper; it can make a big difference in the types of loans and interest rates you qualify for. With a high credit score, your monthly payments on things like credit card debt could drop by hundreds of dollars.
  2. Reduce High-Interest Debt First
    Focus on paying off higher-interest debts like credit cards and personal loans first. Lowering your overall interest costs frees up cash each month.
  3. Use Tools to Compare Options
    Tools like our free calculator let you compare a refinance vs. a home equity loan, so you can make the best choice for your needs.

Keep Debt Working for You, Not the Other Way Around

Debt doesn’t have to weigh you down. By choosing the right kinds of debt, you can focus on what matters now and build a solid future. Here are some tips for keeping debt manageable and beneficial:

  • Aim for “Healthy” Debt
    Debt can help you buy a home, car, or even fund a vacation. But always aim for manageable, “healthy” debt — the kind that supports your goals without stretching you too thin.
  • Focus on Debt That Lets You Enjoy Life
    Good debt isn’t about giving more to the banks; it’s about keeping more in your pocket. Imagine saving hundreds each month by switching to better debt and putting that money toward experiences you enjoy today and security for tomorrow.

The Bottom Line: Say Goodbye to the Refi Boom & Hello to Better Choices

The shortest refinance boom ever was, in some ways, a wake-up call. Yes, refinancing sounds appealing, but it’s not always the best path to financial freedom. Instead, use this moment to find better debt options, boost your credit score, and put more money back into your life.

For tips on finding the best debt solutions, visit us at Smart with Debt, where we guide you on smarter ways to handle your finances and keep your future bright.

Watch our most recent video to find out more about: The Shortest Refinance Boom EVER – Good or Bad For You?

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How to Calculate a HELOC Payment

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Today we are going to not only discuss what a HELOC is but we will also walk through the process of how to calculate a HELOC payment. Let’s get started.

What is a HELOC?

First and foremost, what is a HELOC? A HELOC is a mortgage on your house. However, it operates like a credit card. Just like credit cards, a HELOC allows you to borrow money and then pay it back. Just to clarify, you can borrow money for anything that you need during the draw period. On average, the draw period lasts between 5 to 10 years. Once the draw period ends, the repayment period begins.

How do you calculate payments?

First: What’s your starting balance?

Second: What’s your interest rate?

Third: Grab a calculator

Fourth: Calculate your annual payment. (Balance x Interest Rate)

Final: Calculate your monthly payment (Annual payment/12 months)

Let’s look at an example.

Starting Balance: $50,000

Interest Rate: 8%

Annual payment: $50,000 x .08 = $4,000

Monthly payment: $4,000/12 = $333.33

We are here to help! 

Here at Smart With Debt we want to help you get on the right path. Download our HELOC Payment Calculator for free today! Do you have more questions regarding a HELOC and determining if it is right for you? Contact us today! Learn more about how to calculate a HELOC payment in our most recent video.

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3 Things to Think About BEFORE You Get a Cash Out Refi

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A cash-out refinance can be a powerful tool to manage your finances. However, it’s important to make smart decisions before diving in. Let’s break it down into 3 things to think about before you get a cash out refi. This will not only protect your future, but it will also help you  get the best deal.

1. Get the Relief You Need, Not What They Offer

When you’re looking to refinance, make sure you’re getting the relief that you actually need. Sometimes, lenders might push you toward a higher amount or different options that don’t match your goals. If you’re aiming for a specific payment reduction, then focus on getting that number. Do not just focus on what the mortgage person suggests.

Example: Imagine you have a credit card balance that’s eating up $400 a month, and your goal is to free up that cash. Don’t let a lender talk you into taking on more debt than you need. Stick to your goal to reduce your payment without adding unnecessary costs to your future.

2. Don’t Pile On Debt That Hurts Your Future

It’s easy to get caught up in lowering payments today, but be careful not to add a mountain of debt to your future. Taking on too much debt can create stress and financial pressure down the road, affecting your well-being and your family’s peace of mind.

Example: If you currently have a great rate on your mortgage—like 3%—and you’re considering refinancing to a new rate of 6%, think twice. That’s doubling your cost of borrowing, which could mean a lot more interest over the life of the loan. Protect your future by not trading low-cost debt for high-cost debt.

3. Explore All Your Options

Before jumping into a cash-out refinance, look at other options. You might find that a home equity loan or a 0% credit card can meet your needs without adding so much long-term debt. These alternatives can give you the breathing room you need without putting your financial future at risk.

Example: A recent situation showed that a family considering a $290,000 cash-out refinance ended up adding over $230,000 in extra interest over time. Instead, they chose a home equity loan that kept their payments low and didn’t pile on that extra interest burden. They protected their finances and avoided unnecessary debt.

Protect Your Finances and Future

Remember, a cash-out refinance is just one of many tools available. Make sure you’re getting the best solution for your situation, not just the one that seems easy. Taking a little extra time to explore your options can help you avoid costly mistakes and keep your financial health on track.

For more guidance on cash-out refinances or to explore other financial tools, check out our Loan Cost Optimizer. We’re here to help you find the best debt solution for your goals.

Contact us today and watch our most recent video to find out more about the 3 things to think about before you get a cash out refi.

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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.

Watch our most recent video to find out more!

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How to Find the BEST Rate on a HELOC

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How to Find the BEST Rate on a HELOC

When you’re looking to find the best rate on a HELOC (Home Equity Line of Credit), it’s important to know that not all rates are the same. Rates can vary widely depending on where you shop, whether it’s a bank, a credit union, or a mortgage broker. So, how do you make sure you’re getting the best deal? It all comes down to understanding one key factor: the margin.

What Makes Up a HELOC Rate?

To find the best rate, you need to understand how HELOC rates are calculated. A HELOC rate is made up of two parts:

  1. The Index: This is a base rate that all lenders use, which is the prime rate from The Wall Street Journal. The index is the same no matter where you go.
  2. The Margin: This is what the lender adds an additional percentage on top of the index. The margin is essentially the lender’s profit, and it can vary greatly between different institutions.

For example, I recently helped a client, Steve, who was shopping for a $100,000 HELOC. One lender, a credit union, offered him a rate with an 8.5% interest. However, a mortgage broker offered a rate of 12.5% for the same loan. That difference in the margin would have cost Steve an extra $4,000 in interest each year. It is important to keep this in mind when looking for a HELOC so you don’t pay more than you have to! 

Focus on the Margin

Since the index is the same across all lenders, your main focus should be on finding the lowest margin. Think of it like shopping for gas. You might drive down the street and see three gas stations. However, each one is charging a different price for gas, even though they all get their supply from the same refinery. The difference between them is in the profit each station wants to make. 

Similarly, different lenders charge different margins based on how much profit they want to earn. For example, one credit union the area offers a 0% margin, meaning they’re not adding any extra profit to the index. On the other hand, some banks and mortgage brokers might add margins of 2%, 3%, or even 6%. That’s why it’s crucial to shop around and compare.

How to Shop for the Best Margin

When you’re ready to shop for a HELOC, start by comparing margins. Call or visit 10 to 15 different credit unions, banks, and mortgage brokers. Ask them about their margins. Once you’ve found a few with the lowest margins, then you can look at other factors like fees or terms.

For example, in Steve’s case, taking the time to find the best margin could have saved him between $4,000 and $5,000 in interest over the life of the loan. That’s money that could go towards other bills, paying down debt, or just enjoying life a little more.

Start Shopping Smart

To get the best HELOC rate, start with the margin. Focus on finding the lowest one, then compare other costs. By shopping smart, you can save a significant amount of money and put it towards the things that matter most in your life.

If you need help getting started, download our free HELOC Shopping Scorecard below or check out our website for more info. And remember, every dollar saved on interest is a dollar you can invest back into your life.

Watch our most recent video to find out more about How to Find the BEST Rate on a HELOC

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