Breaking fixed mortgage to do debt consolidation
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Hi there,
Currently at the last step of evaluating options for some debt consolidation, and would love some input as we don’t have any really financially literate friends or family.
We bought our first home in 2018 for 150k, and put 20k of renovations into it using a low interest renovation loan. We have around 50k in student loan debt combined.
I make 120k, my spouse makes 70k.
Due to some unfortunate medical issues, we currently hold around 35k of debt at 8% interest. In total, all of our debt eats up about 40-60% of our cash flow.
We inquired with our current mortgage holder about a home equity loan to consolidate our higher-interest debt, but they are not offering anything than drive-by house appraisals during COVID, and low balled us at 225-250k.
We do our daily banking with another bank and inquired with them, and they did an in-home appraisal and appraised our house in-home and apprised at 250-300k, allowing us to consolidate our higher interest debts into our mortgage, which would bring our mortgage up to 200k.
Doing so involves breaking our fixed mortgage, which would lower our interest rate 1.5% for 5 years from 3.6% to 2.1%, but incur approximately a $7000 penalty.
Our main concern is fixing our monthly cash flow so we can handle bumps in the road, provided that it does not seem crazy to do this.
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One of my friends was dealing with a large amount of debt, and I knew they wouldn't be able to pay it off on their own. So, I recommended reprise union first funding to them, and it turned out to be a wise decision, as they were able to help them clear their debts without any complications. I hope my suggestion can help someone else in a similar situation.