Our scenario comes from a recent client we helped with their mortgage. Credit scores were good, employment and income were very good, but there was quite a bit of consumer debt. The mortgage on the home was at a pandemic-low interest rate, and while it seemed silly to try to find a replacement option, the amount of interest being paid on credit cards and unsecured lines of credit was gut-wrenching. for our readers who don’t have the time to read to the end here is our Cole’s notes version.
Refinancing didn’t make sense – Sold Home – Paid Off ALL Debt – Bought New & Better Home – Lower Overall Monthly Payments – Better Cashflow ($1,500/mo.) – $25,000 put into savings – HAPPY FAMILY!
The first thing we tried to do was to refinance the home. There was enough equity built up in the property to qualify for a mortgage refinance (more than 20%), but not enough to consolidate enough of the debt to make sense (especially at a higher mortgage rate).
We explored some other options such as an independent consolidation loan, a car loan refinance, and even a 2nd mortgage. Nothing made the family’s situation all that better.
We asked the question, “How would you feel about selling your existing home and leveling up on a new home?” The clients wanted to know more about this option. Let’s break it down.
The home was purchased in 2019 for $350,000, with a 10% down payment a mortgage payment of $1,518.66 per month, and a mortgage rate of 2.89%. The mortgage is coming up for renewal in December 2024. Since 2019 the house has increased in value to about $480,000 due to some very nice renovations, modernization, and a market increase in price. Their current mortgage balance as of November 2023 was approximately $287,111.00. The debt they hoped to pay or consolidate in the refinance was close to $115,000.00 (a couple of credit cards, 2 lines of credit, 2 car loans, and a buy-now-pay-later credit card). The interest rates on the consumer debts were, 19.99%, 19.99%, 28%, 3.9%, and 1.9% and the buy-now-pay-later had a rate of 33% if the full payment wasn’t received by July 2024. Total monthly payments including the mortgage and all debt payments were approximately $4,300.00.
Remember, we didn’t have enough equity to refinance and accomplish the goal of a full consolidation For this family in particular, their current home, while beautiful wasn’t meeting their needs (3 kids under 10, 2 dogs, 1 cat, a bird, and some fish). We qualified the clients for a new home of $550,000.0o with a minimum down payment of $30,000. They sold their home for $485,000 just before Christmas with a March 15th, possession date. After fees, commissions, and mortgage penalty ($2,100) they had about $173,500 left to pay out the debts in full. They had a remainder of $58,000 to use for the down payment and closing costs.
They purchased a new home for just under $500,000 with a possession date at the end of February. This home was bigger, nicer, and in the same neighbourhood. We were able to secure them a rate of 4.99% for a 5-year fixed rate. Their new mortgage payment will be $2853.10. This is a lower overall payment of $1,457.13 per month because all of the debt will be paid in FULL!!! This family will have an extra $1,500 per month in their budget.
For transparency, there were costs. The cost to sell the home (REALTOR, Lawyer, Mortgage Penalty), and there were costs to purchase the new home (Closing costs approximately $7800).
This solution worked perfectly for these clients. A new home that suited their needs, one lower monthly payment, and $1,500 more cash flow for their household budget. I forgot to mention they had a little money left over to put in their savings account of just under $25,000.
If you applied for a mortgage refinance and were denied, or the numbers didn’t make sense, please call us for a 2nd opinion!
