When you take out a mortgage on a property, whether it is your primary residence, a vacation home or an investment, you start out with a monthly payment that fits within your budget. However, budgets can often go through significant changes as time goes by. Perhaps you or your spouse goes through a job loss or a major illness that keeps one of you from being able to bring in the same amount of money that you had. Maybe you have a child about to head off for college, or maybe you or your spouse is considering retirement. As a result, you may have run up some significant credit card debt that you are now paying back — but at interest rates that are much higher than what you are paying on your mortgage. Or you may have had to take out a student loan for one of your children or purchase a car sooner than you had planned.
In any of these scenarios, you may find that your monthly cash flow is compromised to some degree. The chance to refinance to boost monthly cash flow can bring you peace of mind and give you the flexibility to change your lifestyle.
How does refinancing for cash flow work? If you have equity in your home, you can refinance to take that equity out and use the money to pay off higher-interest loans, and then pay off the newly increased balance in your mortgage — but at a much lower interest rate. You can erase tens of thousands of dollars in consumer debt and notes on cars and other purchases and still find yourself paying out significantly less per month.
Here’s an example.
- Your home is worth $400,000.
- You bought it for $350,000 years ago.
- Your current balance is $120,000
- This means you have $280,000 in equity (the value minus the balance due).
- You owe $35,000 in credit card debts, all carrying between 20 and 25 percent interest rates and pay $1050 a month
- You also owe $35,000 in a balance on your car loan, at an 8 percent interest rate and pay $700 a month
Solution 1; (Good Credit)
- Increase your mortgage to $195,000 (Use $75,000 in equity).
- Assuming your monthly payment increases by $550 if you wanted to keep amortization the same.
- Increase cash flow $1,050 in increased cash flow each month.
Solution 2; (Bad Credit
- Keep your existing 1st Mortgage (may be the better option depending on your penalty to break the mortgage early)
- Obtain an $70,000 Second Position Equity 2nd Mortgage (rates are generally 10% or greater plus fees)
- Assuming your monthly payment is $583.33/month at 10%.
- Increase cash flow $1166.67 in increased cash flow each month.
If your credit is pristine, then refinancing should be no problem for you with an institutional lender. However, if your recent finances have led to some credit issues, Amansad Financial may be able to refer you to an “Alt-A” or “B” lender who works with people a little further down the credit ladder. If that isn’t an option, we can directly assist you with a private mortgage within our lender investor network.
Get in touch with us today!