As your income increases, look for ways to cut back on spending. If you can reduce the amount of money that comes out of each check because your expenses are less than your income, then you’ll be in much better shape when it comes time to pay off those loans. And if you do decide to refinance, make sure that you’re taking on more debt only when it makes sense for your financial future; otherwise, you’ll just be digging yourself into a deeper hole.
In this post, we review the following: Can You Increase Your Mortgage To Pay Off Debt, paying off debt with equity when moving house, can i consolidate my debt into a mortgage as a first time buyer, and secured loan to pay off debt.
Can You Increase Your Mortgage To Pay Off Debt
The best way to pay off debt is by increasing your income and reducing your expenses. That’s the general rule of thumb for managing your finances, and it’s especially true if you’re trying to get out of debt. If you increase your income but don’t reduce expenses, though, you might be tempted to refinance your mortgage in order to save money on interest payments. While this can be a good way to make extra cash available for paying down loans or credit card balances—or even help build up an emergency fund—it’s important not to take on more debt than you can afford just because the interest rates are low right now.
You can refinance your mortgage if you have a high interest rate and you’re able to pay more than the amount saved by refinancing.
If you’re looking to reduce your monthly payments, it’s important to determine whether or not refinancing your mortgage could save you money.
If you have a high interest rate and are able to pay more than the amount saved by refinancing, then it might be worth the extra money. However, if this isn’t the case—or if there are other factors weighing against refinancing your mortgage—it may not be worth paying for a lower interest rate.
You should also consider how much time is left on your original loan before deciding whether or not to refinance. If there’s still time left in that loan term and if rates have risen since then, then it may be better just wait until rates go down again rather than refinance immediately.
Get pre-approved for a new mortgage and use that to convince your current lender to lower your interest rate.
If you have to ask “can I increase my mortgage to pay off debt?” the answer is probably no. You need to be able to afford the new mortgage, which means having enough income and assets. This is usually a problem if your job disappeared or got outsourced overseas, but sometimes it’s just a matter of salary. For example, if you earn $40k per year and bought your house with 20% down ($8k) at 4% interest over 30 years, then each month you’ll pay $600 in principal and around $20 in interest (that’s an APR of 5%). If this is all that stands between paying off your debt or keeping it around forever, then maybe we can help out!
Refinance your mortgage before you need financial help paying it off.
If you are considering refinancing your mortgage, do it before you have a financial emergency.
The reason for this is simple: if you need to refinance, it’s going to cost more than if you did it before an emergency arose. And there will always be an emergency—if not now, then in the future.
Refinancing rates vary greatly depending on the current market environment and individual financial circumstances of borrowers like yourself at any given time. It’s best to wait until there’s a period of economic stability before applying for refinancing; otherwise, it may end up costing more than necessary over the long term when interest rates change dramatically between applications due to fluctuations in the economy or global events affecting national currencies like USD vs EURO etc…
If you’re having trouble making ends meet, ask your creditors to reduce the amount of payment they make on past due bills first.
If you’re having trouble making ends meet, ask your creditors to reduce the amount of payment they make on past due bills first. For example, if you’re paying only the minimum due on your credit card each month and not able to pay off the balance, call and ask them if they’ll lower your interest rate so that you can get caught up faster.
You may also be able to negotiate a payment plan with creditors or other debt collectors who are threatening legal action against you if they don’t receive payments by certain dates. Creditors are often willing to work with customers who are facing financial difficulties because they want their money as much as borrowers do!
If this doesn’t work (or doesn’t make sense for any reason), try negotiating with lenders directly about reducing your monthly mortgage payments until everything is paid off.
It’s hard to refinance your mortgage but it can be worth bringing in additional income if you’re ready to do so.
The first thing to consider when considering refinancing a mortgage is whether it makes financial sense for you. If your current lender will give you a better interest rate and saving is important to you, then refinancing might be worth considering. On the other hand, if your monthly payments are already low and there’s no chance of saving money in the long-term, then refinancing doesn’t make sense.
It’s also important to keep in mind that there can be drawbacks of refinancing as well as benefits—so before jumping into anything too quickly, think about whether or not this would help or hinder your overall financial situation. For example:
- Refinancing may lower your mortgage rate but increase fees (like fees for processing an application). If this is what happens with your refinance application, then those extra costs could offset any savings from getting a lower interest rate and negate the benefit altogether!
- If interest rates are rising when you apply for refinancing (like now) and they rise even higher afterwords – but before your new loan has been approved – then it may mean some additional cost associated with paying off those higher rates when compared against paying off old ones..
paying off debt with equity when moving house
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, or legal advice. HomeLight always encourages you to reach out to a qualified advisor regarding your own situation.
It’s a common scenario. You live in your dream house, but the mortgage is high, and it’s a stretch to make that payment every month. Your credit cards are maxed. And because this house is your most valuable asset, you’re wondering, “Should I sell my house to pay off debt?”
Selling your house to pay off debt isn’t an uncommon solution, but putting your home on the market isn’t an easy choice either.
Before you decide to sell your house to pay off debt, take caution, and spend a few minutes reading this advice from top financial advisors and real estate agents. Here’s how to decide if you should sell your house to cover debt in 2022.
Start by determining why you’re in debt
Debt is incredibly common in the United States. In fact, according to a CNBC report, the average American holds $90,460 in debt.
That means it’s not uncommon to feel stressed about debt. However, while selling your house might be the right move, it’s not a quick fix. Before you decide to sell your home to get out of debt, determine the underlying reasons you’re in debt and the type of debt you’re holding.
“A lot of time it depends on the type of debt you have,” explains Sunny Wang, president and financial advisor at Essence Wealth and Insurance Services in Santa Clara, California. “When I advise clients, I look at what type of debt they have, how much, and what the interest rate is they’re paying on the debt.”
There are a few common reasons you may be in debt:
You bought more house than you could afford
In this case, when you bought the house you’re living in now, based on your credit score and income, you qualified for more than you thought you could afford. So you took it. Maybe you picked up a bigger house, a pool, or that five-car garage you wanted for years. A lot of people buy more house than they can afford just because they are approved for it, and their financial circumstances change later on–leaving them with high debt.
You struggle with money management
Many people follow a simple financial philosophy: If you want it, you buy it. Unfortunately, if you’re not managing your money, it’s easy to find yourself in debt.
In this case, if you have tons of debt and you think that selling your house will make your debt problem disappear, you should rethink your plan. Yes, selling your house could wipe out this bout of debt, but if you don’t correct your spending and planning habits, you’re bound to end up in the same situation a year or two down the road–only next time you may not have any housing assets to get you out of it.
If you need help with money management, consider using You Need a Budget (YNAB), a popular personal budgeting program, trying Mint, a free, web-based personal finance service, or talking to a financial advisor.
“There are a lot of moving parts, and there are strategies that people may not be aware of,” says Wang. “So I think it’s always wise to talk to a professional about it–a financial advisor that specializes in holistic planning.”
You had an emergency
Everything from car problems to health scares can put a person in debt. Unfortunately, many people simply don’t have the funds to pay for an emergency. In fact, a YouGov survey found 49% of Americans don’t have the cash to cover a $400 emergency expense.
If you don’t have problems managing money but have found yourself in a sticky debt situation, selling your home might feel like the only option. However, it’s another instance when you should tread carefully.
Ask these questions before you sell your house to pay off debt
Once you understand the underlying causes of your debt, it’s time to ask a few questions about your property and the real estate market in the area to assess whether selling off your house to pay off debt is the right approach. Here’s what to ask yourself:
How much will you make on the sale of your home?
Just because you own a house doesn’t mean you’ll make money when you sell it. Your home sale proceeds are based on how much of a down payment you laid out at the beginning, how much you’ve paid off on your loan, and the projection of what your home is now worth.
Whether you’re a year or 10 years into paying off your mortgage, it doesn’t make a difference when selling your home. The trick is knowing exactly how much you still owe, so you can make sure the sale of your current home pays off the remainder of your mortgage.
To find out, contact your lender or servicer and request your payoff amount. The payoff amount is the total you’ll have to pay to satisfy the terms of your mortgage loan, including any interest you owe until the day you plan to pay your loan in full.
The payoff amount is not the same as your current balance, which will appear on your most recent account statement and may not include interest.
If your home is worth less than the outstanding balance on your mortgage, things become more complicated, and selling your house to pay off debt simply won’t be feasible.
But it could be the opposite case. Say, you bought your house during a market crash and you got it for a steal. You put 20% down, and you’re quickly paying down the mortgage. An appraiser comes out and estimates your home is now worth double what you paid for it. Because it’s worth more now, you have more home equity.
It’s also important to know that, although there is a payoff at the end, selling your house is not a free process. For instance, closing costs are made up of points and lender fees, third-party fees, interest, taxes, insurance accounts, and escrow account funds. These fees differ by location and loan, but they tend to around 1% – 3% of your sale price.
“Mortgage companies, banks, they all really vary in products, rates and fees,” says top agent Rebecca Carter, who sells homes 47% faster than the average Knoxville agent. “I always advise people to talk to at least three and get an idea of what they can offer and what it’s going to cost you.”
If you need help estimating costs, Bank of America provides a step-by-step guide explaining how to calculate your current home equity. From there you can calculate your home sale proceeds.
How high is the rent in your area?
If you’re in debt, having a mortgage looming over your head can feel like it’s too much to handle. For this reason, renting a house may be more appealing. But before you take that step, consider the cost of renting in your area.
“When selling the home, you need to remember that you have to rent,” Wang explains. “There’s still an expense there.”
The costs of renting and owning a house will depend on the market and your local area. According to a recent Realtor.com study, the costs of monthly rent are lower than the costs of buying a home in 38 of the US’s 50 biggest metro areas. However, the same study saw median rent in those same most popular metros spike to record highs in June.
It’s a good idea to do city and area-specific research before determining whether buying or renting is better for your location and situation.
Are you prepared to move out of your house?
So you’ve done the math and determined that selling your house could, in fact, help you pay off debt. Oftentimes, a seller will still feel so attached to their home that moving would be emotionally devastating. If this is the case, it’s a good idea to talk to a finance professional about the other options on the table to pay off debt.
“They should definitely talk to a professional about it to look at their overall finances,” says Wang. “Sometimes it’s not as simple as, ‘Okay, I’ve got to pay off my debt. I have to sell the home.’ There may be resources they have that they can tap into and they’re not aware of.”
can i consolidate my debt into a mortgage as a first time buyer
First time home buyers have plenty to think about. There’s the process of saving for a down payment, closing costs and moving expenses. These expenses, and many others, all play a role in determining how much “home can be afforded.” There is the necessity of exploring mortgage options, comparing rates and fees – and cleaning up the credit report and profile ahead of that process.
What about finding the right home in the first place? Choosing the right real estate agent, the right type of house in the right type of neighborhood while sticking to a budget and negotiating with the seller – none of this is quick and easy stuff.
Now, throw in the prospect of attempting to do all of this successfully while saddled with high interest rate credit card debt, personal loan debt, student loan debt…what’s a first time home buyer to do? Buying your first home can be challenging – especially if you’re dealing with debt. However, there is hope. Learn more from our first time home buyers guide to debt consolidation.
First Time Home Buyers Guide to Debt Consolidation
Buying a house when you’re in debt isn’t always easy. Mortgage lenders are generally concerned about pre-existing debt and the debt-to-income ratio of a mortgage applicant. The rule of thumb for debt-to-income ratio is that up to 43% of pre-tax income can be earmarked to repay monthly debts related to housing, auto loan, student loan and credit card payments.
First time home buyers who are carrying significant debt can run into challenges in securing the appropriate home mortgage when pre-existing minimum monthly payments already account for too much of the 43% in the debt-to-income ratio. For example, if a mortgage applicant earns $7,500 per month but has two car loans that total $700 per month, $400 in minimum monthly credit card payments and $400 in student loan payments, that $1,500 of monthly debt payments already eats into 20% of the pre-tax monthly income, or almost half of what’s allowed under the 43% ceiling on the debt-to-income ratio.
However, there is a possible solution – debt consolidation. A first time home buyer debt consolidation loan (DCL) combines multiple debts into one single loan, typically resulting in a lower interest rate and, importantly, for the purposes of first time home buyers – a lower monthly payment.
The lower monthly payment that results through debt consolidation can free up space within the debt-to-income ratio to allow for approval of a larger monthly mortgage payment.
Creating more room for the monthly mortgage payment not only makes it easier to get approved for a mortgage, but it can also allow for a smaller down payment and larger mortgage loan when buying the house. Interest rates on debt consolidation loans frequently are lower than those attached to credit cards, so a DCL taken out in the form of a personal installment loan can make a difference for a first time home buyer in debt qualifying for a mortgage.
Through a debt consolidation loan, it becomes possible to borrow sufficient funds to pay off a variety of unsecured debts (credit cards, installment loans, private student loans, etc.), while resulting in a lower combined monthly payment.
The DCL also simplifies the repayment process, combining multiple monthly payments into one single monthly payment that helps avoid inadvertent delinquencies and late fees that can harm a credit score and make the debt more expensive.
Can you consolidate debt into a first time mortgage?
Consolidating debt into a first mortgage may be a good option for some people. However, it’s important to understand all of the potential risks and benefits before making a decision. For example, consolidating debt can help improve your credit score by lowering your credit utilization ratio. But, if you miss payments on your new mortgage, it could have a negative impact on your score.
Mortgage interest rates are often lower than the interest rates on other types of loans. So it can be tempting to try to use a new mortgage to pay off high-interest debt. But it’s not always easy to do. Most mortgage lenders don’t want to loan more money than the property is worth, so you might need to make a bigger down payment if you want to borrow money through a mortgage to pay off your other debt.
Before lending money for credit card repayment, the underwriter will look at your credit report and repayment history. They will also consider that credit card debt is not backed by anything, unlike a home mortgage. A home mortgage is a form of secured debt – it is backed by the collateral of the property itself. If you don’t pay your mortgage, the bank can take your house. So before deciding to roll your credit card debt into a mortgage, you need to make sure that you can afford the monthly payment.
Buying a House When You’re in Debt
When you’re in debt, it can be difficult to save up enough money to buy a house. You’ll need to come up with a plan to get your debt under control so that you can focus on saving for a down payment. There are several ways to get your debt under control and improve your debt-to-income ratio. You can work with a financial planner to create a plan that’s right for you.
Once you’ve gotten your debt under control, you’ll need to start saving for a down payment. You can set aside money each month until you have enough saved up. Alternatively, you could look into government programs that offer assistance with buying a home.
No matter what route you take, buying a house when you’re in debt is possible. You just need to be patient and create a plan that works for you.
Can You Buy a House After Debt Consolidation?
The answer is yes – if you plan early and get started well before pursuing a mortgage. The key is to consolidate significant pre-existing debt through some combination of a personal installment loan and promotional low interest rate balance transfers. Personal loan companies are amenable to funds being utilized for debt consolidation, and frequently grant loans ranging up to $40,000 or more. Online resources is an excellent place to begin a search for a personal loan that can ultimately free up space within the debt-to-income ratio and make it easier to qualify for a mortgage as a first time home buyer in debt.
Meantime, promotional rate balance transfers remain a useful tool for managing higher interest rate credit card debt and saving disposable cash each month while lowering monthly payments, also making it easier for a first time home buyer in debt to qualify for a mortgage with a lower debt-to-income ratio. Start the process early. Although 0% promotional balance transfers are typically reserved for individuals with FICO credit scores well into the 700s, it is still possible to find low single-digit interest rate promotional balance transfer offers if you have a good credit score and profile.
Contact United Debt Settlement to learn more about Loan and Payment Relief Options During COVID-19. Give us a call at (888-574-5454) or fill out our online contact form.
secured loan to pay off debt
Secured personal loans may provide the cash you need for almost any purpose, including paying for unexpected expenses, home repairs and more.
Secured personal loans are backed by collateral, such as a savings account, certificate of deposit or vehicle. They’re often easier to qualify for than unsecured personal loans because the lender has the right to keep your collateral if you’re unable to make your payments.
If you use money from a savings account or CD as collateral, you probably won’t have access to it until you’ve repaid your loan. But if you secure your loan with a vehicle, you typically get to keep it throughout the term of the loan as long as you make your payments on time.
If you’re looking for a secured personal loan, we’ve rounded up our top picks to help you find the one that’s right for you.
Best for small loans: Regions Bank
Why Regions Bank stands out: Some personal loan lenders have minimum loan amounts of $1,500 or more. Regions Bank offers secured personal loans as small as $250, which should help you not have to borrow more than you need. But you’ll likely need strong credit to qualify.
Best credit union for secured personal loans: First Tech Federal Credit Union
Why First Tech Federal Credit Union stands out: You’ll need to be a member to get a loan from First Tech Federal Credit Union, but joining is relatively simple. If you’re a member or decide to become one, First Tech Federal Credit Union offers competitive rates, payment protection and potential same-day approvals.
Best for bad credit: OneMain Financial
Why OneMain Financial stands out: OneMain Financial offers secured personal loans ranging from $1,500 to $20,000 and may be willing to work with you if you have less-than-perfect credit. Nearly half of its customers have credit scores below 620, according to the company’s latest annual report. (Your loan amount and terms may differ if you apply through Credit Karma.)
Best for online lending: Upgrade
Why Upgrade stands out: If you like the convenience of a digital process, you can apply for a secured personal loan online with Upgrade. Upgrade offers personal loans from $1,000 to $50,000, and you can apply for prequalification to see estimated terms without hurting your credit.
What you should know about secured personal loans
When you take out a secured personal loan, you risk losing the assets you pledged as collateral. If you don’t repay the loan, you could end up losing your vehicle, home, money or other property that’s guaranteeing the loan.
The process of seizing collateral varies depending on the type of collateral and your state laws. Your loan contract should outline when lenders can take the collateral and what they must do to seize your assets. In some cases, they can take the property serving as collateral without providing advance notice — so it’s important to read your loan agreement carefully to understand your rights.
When a lender seizes property for nonpayment, it will likely sell it and use the proceeds to pay off your debt and cover any costs associated with recouping its losses.
You’ll only get money from that sale after the lender has been paid in full. If the sale doesn’t generate enough to repay what you owe, the lender might try to collect the difference from you.
Where can you get a secured personal loan?
Secured personal loans can be obtained from banks, credit unions and online lenders. To apply for a secured personal loan, shop around and compare interest charges, collateral requirements and repayment terms.
If you’re looking into a car title loan or a pawn shop loan, consider other options first. These loans can be very costly, with lenders usually charging high interest and a host of fees.
Other examples of secured loans are car loans and mortgage loans — they’re backed by the property you purchase.
How to get a secured personal loan
If you’ve decided to borrow using a secured personal loan, you’ll want to compare loan terms and loan offers among different lenders. There are several things to consider when shopping around.
Once you’ve found a lender offering a loan you think you can qualify for with reasonable terms, you can submit an application. If your application is approved, you’ll receive the borrowed funds and begin loan repayment.
Bottom line: Is a secured personal loan right for you?
A secured personal loan might not be your first choice. You may decide to apply for a secured personal loan if you can’t qualify for an unsecured loan or can get a lower interest rate than with an unsecured personal loan.
That doesn’t mean secured personal loans are a bad option. These terms often work well for people who can make their monthly payments on a steady schedule. People who don’t have strong credit can also build credit by borrowing and repaying the loan as agreed over time.
But there are many shameless lenders targeting bad-credit borrowers with secured loans that are very costly. For instance, car title loans can come with monthly fees and interest as high as 25% of the borrowed amount, for an APR of roughly 300%. Before borrowing, research your loan terms and lender carefully, and stick with reputable lenders.
Most crucially, make certain you’re 100% confident you can repay the loan. If you’re not, you’re taking the chance of losing your money or property, as well as taking a hit to your credit.
How we picked these loans
We reviewed more than a dozen secured personal loans. The criteria we used to come up with our top picks included interest rates, fee structures, availability, loan amounts, repayment terms and funding timelines.