Refinance a Mortgage to Pay Off Debt for 2022

If you want to pay off debt and start 2022 with a clean slate, refinancing your mortgage with a cash-out refinance can give you financial freedom for the new year.

Homeowners with equity have a lot of choices when it comes to refinancing a mortgage. Applying for a cash-out mortgage is one option, but there a several loan options worth considering if you want to pay off debt.

These quick steps can help you get started.

How to Fast Track Your Refinance and Pay Off Debt

If you’re ready to refinance your mortgage to pay off debt, take action now and access today’s mortgage rates while they are still low.

Low interests rates are only one part of a mortgage refinance. To be honest, several factors directly impact your refinance rate, including your credit score, loan-to-value ratio, and the type of loan you choose.

Step 1: Decide how much debt you want to pay off

Use a free mortgage calculator to find out how much you can save when you refinance your mortgage. Decide which factors are most important to you, then connect with a mortgage advisor to discuss your mortgage goals. For example, maybe you want to take out as much cash as possible, or maybe you want to refinance for a lower mortgage payment. It might be time to refinance from an adjustable-rate mortgage to a fixed-rate mortgage.

Or you could apply for a rate and term refinance to get a lower mortgage payment. A lower mortgage payment can free up monthly income toward debt repayment. Alternatively, applying for a home equity loan or a HELOC is another option.

Use this mortgage refinance calculator to see how much you can save

Step 2: Connect with a local mortgage advisor

Talk to a mortgage advisor right away if you want to refinance your mortgage with cash-out to pay off debt. An experienced mortgage advisor can start the process quickly and help you lock in the lowest rate possible. What’s more, they’ll uncover hidden opportunities and customize a mortgage refinance to meet your immediate and long-term financial goals.

No matter your credit score or employment status, there are refinancing options available for most homeowners.

Ask about a HELOC or Home Equity Loan, both of which allow you to access the equity in your home and use the funds however you’d like. A standard cash-out refinance is a more direct way to access cash, restructure your home loan with a fixed-rate and enjoy a lower mortgage payment.

Find a qualified mortgage expert in your local area

Step 3: Gather required documentation for a cash-out refinance

Start gathering paperwork you’ll need to verify income and assets, employment information, bank statements, and tax returns. Ask your mortgage advisor for a quick list to help keep things on track. An experienced mortgage advisor will provide a checklist to follow and will make sure the process runs smoothly.

If you’re self-employed, your mortgage advisor can talk with you about additional information that might be required.

Step 4: Download your free credit report

If you want to pay off debt, chances are your credit might not be the best right now. Don’t let late payments or high credit balances keep you stuck.

You can download a free copy of your credit report once every 12 months. It’s a good idea to look for any errors in advance and know what you’re facing. Your credit score has a direct impact on the terms of your loan and your mortgage rate. By reviewing a free copy of your credit report early, you can fix errors ahead of time and partner with your mortgage advisor to get the right mortgage.

Click here to download your free credit report

Questions about refinancing? We hear you.

What are my options for refinancing a mortgage to pay off debt?

If your current mortgage is more than 6 months old, here are the most common options worth considering if you want to pay off debt:

• Cash-out Refinance
• Rate and Term Refinance
• Consolidate a Second Mortgage
• Home Equity Loan
• Home Equity Line of Credit

Applying for a cash-out mortgage refinance is the fastest way to access cash from the equity in your home.

That said, if you apply for a rate and term refinance, you could substantially lower your mortgage payment, and put those savings directly toward paying off debt. Also, if you decide to consolidate a 1st and 2nd mortgage, you can apply your monthly savings directly to pay off debt.

Applying for a Home Equity Loan or a HELOC is another option that gives you direct access to cash at a low interest rate. With a home equity loan or a HELOC, there are no restrictions on how you use the funds, so you can pay off debt, start a home renovation, or start a new investment.

Can I refinance my mortgage without getting a home appraisal?

With a cash-out refinance to pay off debt, a home appraisal is almost always necessary. Depending on your refinancing terms, the mortgage lender will most likely initiate an appraisal to verify your home’s current market value.

The mortgage lender will want to evaluate risk and verify that your home value meets the 80% loan-to-value ratio. In some cases, you might have the option to bypass a home appraisal. Talk to a mortgage advisor to see if you qualify for a no-appraisal refinance. 

RELATED: Talk with a local mortgage expert to find out if you qualify for a no-appraisal refinance

Are there closing costs to refinance a mortgage to pay off debt?

Yes. Even when you apply for a mortgage refinance to pay off debt, there will be closing costs. However, there are options to roll your closing costs into your new loan, which we recently blogged about here.

Closing costs on a cash-out refinance to pay off debt typically include:

• Origination Fee
• Appraisal Fee
• Credit Report Fee
• Mortgage Insurance (if applicable)

When you refinance a mortgage to pay off debt, most homeowners have the option to pay the closing costs upfront, roll them into the loan, or get a lender credit in exchange for a higher rate. Review the numbers to decide whether or not refinancing to pay off debt is actually saving you money. 

RELATED: Learn the Truth About No-Closing Cost Loans

What documentation will I need to refinance my mortgage to pay off debt?

Refinancing a mortgage to pay off debt is similar to starting an application for a home loan, with a few exceptions. Mortgage lenders require varying documentation depending on the type of home loan you decide on.

Common documentation to pull together:

• Identification such as a passport or driver’s license
• Employment verification
• Proof of income (e.g., pay stubs, W-2 statements, bonuses, alimony)
• Tax returns for the past two years 
• Recent bank statements
• Investment account statements

If you’re self-employed, ask your mortgage advisor about additional information that might be required.

RELATED: How to refinance a mortgage when you’re self-employed

Next Steps

When you’re ready to refinance your mortgage to pay off debt, an experienced mortgage advisor can help you access cash, lock in the lowest mortgage rate, and secure your best home loan. Connect with a mortgage advisor to discuss your options and make a plan that can help you save money on your mortgage. We’d love to help.