November 5, 2018
With rates still low, Orion’s AE are hearing about many families who are looking at their accumulated consumer debt and asking their broker if they should refinance or get a home equity loan to pay off their debt and lower their monthly credit payments. Rates change every day but being able to get a rate for a cash-out refinance possibly somewhere around 5% for a 30-year fixed rate mortgage seems better than paying high, possibly as high as 20%, on credit cards. Is it a good idea? Orion’s AEs can help a broker think about options for their client.
Auto loans are generally lower rates than credit cards, and in the past several years with decent credit rates below mortgage rates. They are also fully amortized, meaning with every payment the borrower is paying down the loan balance until it reaches zero.
Some of our broker’s clients consider a home equity line of credit (HELOC) instead of refinancing their mortgage. The rate will be higher, and adjustable with it going up the next few years, but they will have the opportunity to save on monthly payments, or not depending on how they handle the repayment of the HELOC. Brokers often remind their client that if they go this route, it is strongly recommended to continue making the same total of payments being made before, except instead of paying minimum payments on credit cards they are paying down their HELOC balance. One factor brokers ask borrowers to consider is the change in terms later in the loan. It is important to have a payoff plan so the client is not in a position in the future where they need to potentially refinance again.
Our experienced brokers work with clients to create a realistic plan to pay off consumer debt: Make a very realistic budget of net income and expenses, including debt payments. See what adjustments can be made to lifestyle and how much those adjustments will save per month. Take the savings and dedicate them to paying off credit cards. Stop using credit. Drop credit card balances one at a time, starting with the lowest balance. Roll the payments into the next lowest card when one is paid off.
Brokers tell clients that it takes commitment to the payments and whatever austerity measures are put in place but if followed will enable someone to pay off their consumer debt while at the same time making their mortgage payments. Let Orion’s AE help you weigh the options.