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MORTGAGE KNOWLEDGE CENTER

PenFed Mortgage with Confidence

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REFINANCE LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

  1. Home
  2. Mortgage Knowledge Center
  3. Should I Refinance to Pay Off Debt or Student Loans?

MORTGAGE

Should I Refinance to Pay Off Debt or Student Loans?

What you'll learn:Reasons to consider refinancing to pay off debt

EXPECTED READ TIME:3 MINUTES

October 22, 2020

Refinancing a mortgage can be a solution to simplify bill payments and ease some of your financial burden. Whether or not to refinance your mortgage depends on various factors. Some factors include:

  • Student loans with large payments or high interest rates
  • High interest rates on credit cards
  • Too many bills in general
  • Cash flow challenges

Should I Refinance to Pay Off My Student Loan?

Refinancing to pay off a debt really doesn't pay off the debt; it simply moves the debt from one creditor to another. There are advantages and solid reasons for doing this. One is that the current interest rates on 15- and possibly even 30-year mortgages may be lower than your student loan and other interest rates. In such cases, refinancing could make sense, but to determine if this is a good choice for you, make sure that you understand the cost of refinancing, and what that means for the length of your loan over time. Here are some things to consider when refinancing:

  • Interest Rates. What are the interest rates on the outstanding debts that you want to consolidate, and how do they compare with refinance rates you are considering?
  • Closing Costs Needed to Refinance vs. Future Interest Savings. There are costs involved with refinancing that you'll need to factor in when trying to determine if this strategy makes sense. If those costs end up exceeding your savings from consolidating your debt, you instead may want to try paying down that debt.
  • Extension of the Length of Your Mortgage. By refinancing, would you end up extending the length of your mortgage? If you have already been paying down your mortgage for at least a few years, and you refinance, you may end up resetting your loan term to 30 years. If you have a 30-year mortgage and decide to refinance to consolidate debt, you may want to choose a shorter-term loan for the new mortgage, such as one for a 15- or 20-year period.
  • Planned Length of Time in Your Home. You should consider how much longer you plan on being in your home before a potential move.

How Does Debt Consolidation Work?

Typically, your goal with debt consolidation is to pay off high interest rate loans with a lower interest rate option in order to reduce your monthly bill total and/or to save money. Sometimes a goal is to reduce your total number of debts into one loan, which can be helpful for credit purposes. As noted above, when you consolidate debt you may be lowering your monthly payment but adding to the length of your loan. That move can be a favorable strategy, particularly if your cash flow now isn't as strong as you expect it to be in the future.

What Are the Benefits of Refinancing for Debt Consolidation?

Having a number of debts can limit your available credit and negatively affect your overall credit score. By reducing the number of debts and getting further away from your credit limits on credit cards, you should see a boost in your credit score after you've started making regular payments on your new refinanced loan. That can be a big benefit! One thing that can negatively affect your credit rating is when your debt is close to your credit limit. For example, if you have a credit card with a limit of $5,000, and you have $4,500 in revolving debt on that card, not only are you likely paying a higher interest per month, but you are also negatively affecting your credit score because you are near your limit.

If you are looking at debt consolidation, you should examine all of your options, including refinancing. Your credit score, market conditions (current interest rates), and your current mortgage interest rate can all be factors that play into your decision.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

10 Ways to Use the Equity in Your Home to Your Advantage

There are many reasons to use the equity in your home to your advantage. Here are 10 ways PenFed suggests leveraging the equity in your home.
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What Is an Adjustable Rate Mortgage?

An adjustable rate mortgage, or ARM, is a mortgage in which the interest rate can change over time. PenFed is here to explain the benefits of an ARM and if an ARM is right for you.
couple looking at a laptop together

What Is a Conventional Loan?

Conventional loans are just one type of mortgage loan. PenFed is here to help you understand what a conventional loan is and if it is right for you.
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What Is a Conforming Loan?

A conforming loan is based on guidelines set by government sponsored entities. It is important to understand what a conforming loan is and its differences from other mortgage loans.
people discussing over mortgage papers
image

REFINANCE LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

*Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of September 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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Routing #256078446

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You are leaving PenFed.org and entering a third party Website that is not a part of Pentagon Federal Credit Union.


The content you are about to view is produced by a third party unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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