Interest rates have nearly doubled from the beginning of the year. These rate hikes have many people wondering if refinancing to pay off high-interest credit cards is a wise decision. Interest rates on credit cards are still much higher on average than today’s prevailing mortgage interest rate. Since credit cards are affected by the same mechanisms that are causing mortgage rates to rise, their rates are going to continue to grow as well. At Hurst Lending, we understand that a cash out mortgage depends on each individual’s unique circumstance. Factors like the amount of money owed, the interest rate on the debt and the amount of cash flow available should all be considered before committing to a mortgage refinance.
Hurst recently helped a borrower who had run up a considerable amount of credit card debt due to extenuating family circumstances that required a large amount of cash quickly. . Their current mortgage 30-year fixed rate was in the low threes, b credit card debt had driven their credit score down to the point where a second mortgage was not an option. Hurst was able to work with them to get a Texas cash out mortgage, which took advantage of the recent run up in home values. This allowed the borrower to pull out enough cash to pay off the entirety of their credit card debt, despite their less than perfect credit score. The interest rate on the mortgage almost doubled but their cash flow per month was improved by thousands of dollars. Their overall cost of borrowing plummeted after paying off the double-digit credit interest rates. This made a huge improvement in their financial health. The point is you cannot simply look at the mortgage interest rate as the only data point. Often, there are perfectly viable financial solutions available, even if the mortgage interest rate is high.
Another recent example of a cash out mortgage that made a lot of sense even at today’s higher interest rates is using the cash out to buy an investment property. The required credit scores for owner occupied properties are lower than those for non-owner-occupied properties. A would-be borrower recently came to Hurst trying to purchase a non-owner-occupied property that was well below market value and had great cash flow. It was a deal that was simply too good to pass up. However, the borrower had less than perfect credit scores and was unable to borrow money on the would-be investment property. Hurst was able to help the borrower use some of their substantial equity in their primary home through f our cash out mortgage service. This allowed the borrower to take advantage of this opportunity and simply buy the new property with cash.
At Hurst lending we look holistically at a borrower’s entire situation. In some cases, a cash out mortgage might be the best option whereas in others a second mortgage, that can be either a home equity line of credit or a fixed rate second mortgage, might be the best option. Because Hurst can offer all three options, we can always make sure the product you are choosing is the one that makes the most sense in your unique situation, without bias. The amount of debt, the interest rate on that debt, the loan to value of your property, and your credit scores all factor into which option will be the best for you and your family.
Please contact Jay Hurst at jhurst@hurstlending.com for more information.
Jay Hurst is a Residential Mortgage Loan Originator (NMLS# 323441), real estate agent, and financial planner. He has founded multiple successful businesses in the mortgage lending space, and is dedicated to helping consumers avoid the red tape and limitations faced in working with larger lenders. Jay holds a BBA in Finance from Texas A&M University, Class of 2000.
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