It's Your Home; Not A Bank, Not An ATM

Thomas I had a big argument with one of my buyers, six months later he wants to refinance to pay of credit cards... told him it is a stupid idea....Endre

People were encouraged to take equity out of their homes to enjoy with no thoughts of the future.

Transactional based mortgage call centers like these are predicated entirely on originating refinances to generate their revenue (because Realtors know better than to trust them with purchase loans). That said, there are 2 types of refinances: 1) Rate & Term (where you simply exchange your current loan for a new one with a better "rate" and/or "term") or 2) Cash-Out (where you pull cash-out for various reasons). When interest rates rise, Rate & Term refinances dry up, which causes these companies to change their narrative and suggest/encourage Homeowners to pursue Cash-Out refinances. History has a way of repeating itself because many people do not identify the bigger picture (and these companies have too much money invested to simply close down when rates go up). 

With respect to Endre's comments above, debt consolidation refinances sometimes have merit...I would not rule out the logic of that plan without looking closer at the numbers involved...especially if the Client is committed to "cut up" his/her credit cards after they are paid off. I have spreadsheets which help Borrowers determine the bigger financial picture, and the math never lies.  For example, if a Homeowner consolidates $40K of credit card debt into one new mortgage payment and subsequently frees up an extra $1,000 per month, this can be a beneficial strategy if they pursue one/both of the following strategies with that extra $1,000:

1) Term Reduction -- "overpay" their new mortgage payment with that extra $1K each month...this will save significant finance charges (and cut off a significant amount of months/years) over the life of the new loan

2) Asset Accumulation -- deposit that extra $1K each month into a financial vehicle (mutual funds, bonds, etc.).  Over time, the money is presumed to increase substantially via returns + compound interest

As always, everything should be analyzed on a case-by-case basis, but I think we are all in agreement that a Homeowner should never use their equity as an ATM machine.  Alas, it will happen...and history will repeat itself (hopefully not on a level comparable to the mid-late 2000's).

Assets feed you and Liabilities eat you.  Your primary residence home is your families shelter and your biggest liability, equity is an illusion and is only on paper, exchanged at the sale of one house and the purchase of another where you end up with another liability.  When you pull cash out to pay off other debts, you're swapping one form of debt for another.  Granted your re-structure should improve your monthly cash flow, but make no mistake you still have the same amount of debt and you paid good money in either fees or rate or both to get it.  Do the numbers, you don't get a pass on the math!

Some people just don't get it, but then again, maybe they are onto something while the rest of us slog away to pay the bills these guys are having a great time. Just kidding though.