Putting Home Equity to Good Use

Hi guys, this is Jim Duffy with Alcova Mortgage, and I'm so glad you made it again to this expert network. So rates are rising, right? Everyone knows that, it's all over the news, so refinances must be dead, right? Well, not really.

And then here's what we're doing: we're doing a lot of refinances right now because yes, interest rates are up, but you know what's more important than interest rates? Cashflow - and cashflow is king, especially if you think we're going into a recession, which a lot of economists do.

And if we are, things can get tighter and a debt consolidation loan can really loosen things up and help navigate those waters much, much better, especially right now because the gift that we've all been given over the last couple of years if we own a home is lots and lots of home equity, right? We've seen that rise and that's just net worth.

What we've also seen in many, many cases is also other debt kind of rise. We've been through a pandemic, it's been a weird time. Some people lost their jobs, some people were laid off for a while. For a lot of reasons, a lot of people have more debt now than before this pandemic. And there's a solution to that, and the solution is the home equity.

Let me give you an example of someone we just helped. And again, this is happening more and more. But this person happened to be in the mid-fours right, 30 year fixed rate, mid-fours, about three and a half, four years into it. So they had already paid it down a little bit. And so they were like, well, I don't know if it makes sense. So I said, well, let's run the numbers and see if it makes sense.

Well, they wanted to pull cash out to consolidate debt. They had a car loan and they wanted to get rid of, they had a couple smaller student loans they wanted to pay off, and I think it was four credit cards. Total was about a $1,200 difference per month.

So in other words, they pulled their equity out, paid off all of that debt, the credit cards, the car, the student loans, paid it all off and their cash flow improved by 1200 and change per month. That's a $1,200 increase in what you can do every month. Right?

That's an amazing amount of money. Think of it this way: this particular person had a salary of $70,000 per year. Well, if you were to go to your boss and say, Hey, I want to raise, I think I deserve it. What would your boss give? Maybe two or 3% raise per year, maybe super generous and you're doing a great job in a 5% raise per year.

Well, by doing this refinance and freeing up that much cash flow, it's the same as getting a 20% raise per year. That $1,200 compared to the $70,000 income is a 20% raise year over year. So that's what I mean: interest rates matter, but not nearly as much as cashflow.

Cashflow is freeing. It removes all the stress, it allows you to do other things, and guess what you can do with that? Remember, the example I gave was about four years into their 30 year fixed rate, they owed 26 years. To reset to a new 30 year fixed rate, not so much, but they can afford all the payments, right? They were making all their payments, all the minimum payments on credit card, they made their car payment, everything.

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So why not take that $1,200 savings then and keep making that payment, but all of it goes towards the mortgage. Guess what they would do: they would pay off that mortgage in just under 15 years, 14 years and seven months in their case. So that's the other strategy to not only get way ahead, but use that cash flow to really get out of debt completely and get completely free of any debt, including the mortgage.

I really liked the strategy. If you want to explore that and explore using your home equity to really improve the whole cashflow situation of your household, let's do so. I think you'll be amazed at the numbers. If I can help reach out, and I'm so glad you found your way to Find My Way Home. We'll talk soon.