A Holiday Gift for Yourself
Thanksgiving is to shoppers as “Opening Day” is to hunters. Year after year, bargain hunters prowl malls, boutiques, and department stores searching for prey that will be served up as a delectable holiday gift. Unlike traditional hunters, however, some shoppers do not return with next-day hangovers. Rather, they suffer a much more severe ailment that could span many months…or even years.
Overzealous shoppers often find themselves saddled with huge credit card bills following holiday shopping binges. Consumers who have felt this credit card debt crunch know that it is not a fun place to be. Certainly, the best remedy is prevention, but paying off expensive credit cards with less expensive, tax-deductible interest makes a lot of sense for most borrowers.
Traditionally, overextended borrowers reach for a home equity line of credit for immediate relief for their situation. However, with the mortgage refinance market heating up again because of increasingly attractive interest rates, it may make more sense for these borrowers to forego the equity loan and consider a “cash-out” refinance instead.
Your financial planner or a good mortgage loan officer can help you determine your effective interest rate on your consumer debt. He will compare the “weighted” average interest rate of all of your non-tax-deductible debts plus your current mortgage to that of a newly refinanced mortgage that absorbs most or all of your consumer debt. The improved cash flow and collateral tax advantages almost always outweigh the cost of the mortgage refinance. If it doesn’t make sense for your situation, their calculations will show that, too.
Taking equity out of your home to pay off consumer debt should never be part of your financial plan. Your “plan” should be to have a budget that precludes you from getting into that bad situation. If you must resort to a cash-out refinance to relieve your consumer debt, try to treat it like a loan from yourself and pay it back to your home equity over a short period of time. It would be the best gift you could give yourself.
++ Republished as a courtesy of Phillips International LLC. Readers may contact a mortgage professional at www.PhillipsHQ.com/mortgage.
