Ask the Expert: refinance your mortgage

My wife and I have experienced some life challenges that left us with credit card debt. We are thinking of refinancing. What are our options?

You do have options but before we talk about them, let’s clarify the situation.

You’ll need to qualify for the new mortgage and that means your credit should be in order. You’ll have to document your income, assets and debts and prove you can make the payments on the new loan.

You must have enough equity in your house toand cover your outstanding credit card debt.

If you have owned your home for some years, you might have some happy news about your home value. Home prices have been rising in many locales and homeowners often find they have more equity than they thought.

If you have sufficient equity, then you could do a cash-out refinance. That means you refinance your mortgage for more than you owe and take the difference in cash.

You’ll need at least 20 percent equity to do a cash-out refi.

It’s likely that your new interest rate on a cash-out refi will be higher than your current one, since interest rates are rising. If that is the case, then you might consider a home equity loan or a Home Equity Line of Credit (HELOC).

A home equity loan has a fixed interest rate on a lump sum of cash.

A HELOC works like a credit card secured by your house. Like a credit card, you have a credit limit that you can spend up to. The interest rate on a HELOC moves up and down with the prime rate.

Most experts agree that for short-term purposes, such as paying off credit cards, a home equity loan or HELOC can be better. That’s because you will pay off those loans faster and not be locked into a higher interest rate for 20 years (or whatever the life of your mortgage is).