If you’re thinking of taking equity out of your home to consolidate debts, invest, or to do renovations, your home can be used a tool to enhance your life. Let’s use the example of a debt consolidation:
Jim owns his home, but is having trouble making his mortgage payments. Work is slow and he hasn’t been getting the overtime he’s used to. The overtime was going to help pay off his Credit Card, his home theatre system, and the renovation loan he took out early last year. Jim is finding it a challenge to make ends meet. Is there something he can do to save his credit and free up some extra money?
Absolutely, let’s do the numbers. Jim’s monthly costs are:
- His mortgage of $250,000.00 with a monthly payment of $1600/month.
- His Credit Card with a balance of $8000 and minimum payment of $240.00/month
- Also, he has the renovation loan at $308.00/month and…
- The home theatre loan at an additional $300.00/month
Overall, with monthly payments adding up to $2448/month and a total debt load of $278,800.00, Jim is feeling the pressure. But, if he refinanced and increased his mortgage to pay out all his other debt, his monthly payment would be reduced to $1784.00/month. That’s a monthly savings of $665.00! Now Jim is a smart fellow and decides he will put that $665.00 savings back into the mortgage. So, nor only does he have just one payment on his low rate mortgage, he will now pay the entire balance in 14 years and not the 25 years he started with!
Debt free in 14 years … what a great solution!