There’s a whole industry built on trying to help people through bankruptcies and debt consolidation. They have a whole strategy to take all your debt bundled together and help you renegotiate payments. But we’re talking about something very different: refinancing. This comes into play when borrowers have reasonable debt, and they want a structure it inside of a mortgage. They want to take the debt from a car or maybe credit cards, or a home equity line of credit (or HELOC) and combine it.

When is it a good time to do this?

Now, it really depends on your situation. You’d want to be in a situation where consolidating and refinancing your debt ends up saving you money. To be clear, we are not a debt consolidation company, nor do we advertise high-cost loans to help make one simple payment. We want you to save money. So, this just isn’t about one simple payment. This is about how you get rid of the higher interest rate loans you have and roll them into the most affordable loan you will ever get, besides maybe a super awesome student loan that’s got 0% interest rate or something. We like to tell our borrowers that any type of consumer debt, any type of non-mortgage debt — with the exception of student loans — we can roll them all in together into a fixed and affordable long-term mortgage.

Things to consider beforehand

You want to make sure to take a big picture look at when you are at before refinancing. You want to make sure it makes financial sense. Now, the average person will use their mortgage to help finance themselves through almost their entire life. As your home appreciates and as you ride these markets and as you pick up a little debt along the way, do not be afraid to use that home as a way to finance your life. But make sure you live within your means.

While we don’t encourage anyone to have debt, if you’re going to have debt, a mortgage is one of the “best” kinds of debt out there.

Some general rules of thumb

As far as it goes for a mortgage company doing a loan for you on a refinance like this, they cannot go above a certain loan-to-value. What that means is that you have to have a certain amount of equity in your home for this to work and that minimum is usually that you need 20% equity in your home.

For the sake of having very easy math. If you have a $100,000 home and your mortgage is $80,000, no bank will give you a refinance above $80,000 to take any cash out because your loan represents 80% of the value. So, if you’re in a situation where you basically have 20% equity you are not a candidate for this type of refinancing.

People who are candidates for refinancing usually have a lot of equity in their homes. Generally, it’s someone who has a $600,000 house, a $300,000 mortgage, and they have a $100,000 of debt that they can throw on top.

Some people will tell us that they don’t want to consolidate their debt. We’ve heard a lot of different reasons, “I want to keep my eight-year pool loan” or “I want to keep my six-year car loan going and I don’t want to finance it over 30 years.”

First off, if you don’t want to consolidate your debt in this way then don’t. There’s nothing making you do it. You don’t do this because you want to finance these purchases over 30 years, you do it because you want that lower interest rate. So, when you roll them all together you get to take the savings and apply it toward extra principal each month.

This is just the beginning…

This is just a toe-dip in the metaphorical water of refinancing. If you’ve got to pay things off for a while, you may as well do it in a way with the lowest interest as possible.

If you have any questions about this or if you have any questions you’d like us to answer on our podcast, you can email your questions to team@azmortgagebrothers.com or give us a call at (602) 535-2171. Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.

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Thanks for listening and reading the Mortgage Brothers Show. Let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to Tom@AZMortgageBrothers.com or Eddie@AZMortgageBrothers.com.

Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.

Signature Home Loans LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS #210917 and 1618695. Equal housing lender.

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