Take a second or a minute or five minutes or however long you need to think about your next move in terms of fine tuning your finances, and investigate your options.

Credit card debt is at an all-time high. People who have great rates on their first mortgage are not looking to refinance unless there are very strong reasons for doing so, which I’ll review below. There’s no end to the expenses that accumulate. The short list is medical expenses, school, student loans, auto loans, celebrations, utilities, and unexpected car and home maintenance.

Equity lines are usually based on the floating prime rate plus, or sometimes minus, a margin. There are fixed-rate second mortgages with usually higher rates. But the good news is that there are some new competitive products out there. Two deals we recently closed involved: (1) a fixed rate second-home equity line at a rate of 7.5, with the rate staying the same during the draw, and (2) a fixed rate second using just the business owners bank statements to qualify and consolidate their credit card debt.

Anyone who took out a loan during the last couple of years couldn’t show tax returns or the payment of a higher rate than the current ones. If you have a new job or if you started a profitable business in the last two years, it’s an opportunity to refinance your current first mortgage. If you have a great rate on your first mortgage, but you have a lot of credit card debt or student loan debt, it might be worth taking a look at a fixed rate, second mortgage or equity line. It’s just a matter of number crunching. What’s the monthly payment on the new second mortgage versus what you’re paying in any other debt? And when you subtract one from the other is the number positive?

Reasons to consider refinancing a first mortgage are as follows:

1. Damaged credit may have improved. Improved credit scores open the door to possibly refinancing at a rate better than an existing rate.
2. Credit card debt can be super expensive, as can student debt. Number crunch and see if a new loan can improve your cash flow. (Forget about the rate itself.)
3. It may be that you have paid enough of your 30-year fixed rate to switch to a 15-year fixed rate, even at a higher rate, and knock off your existing loan in 15 years.
4. Pay off an existing mortgage with a reverse mortgage and free up cash (which is a great product for the right people over 58).
5. Fixed rates are up, but an alternative and great solution may be to explore Adjustable-Rate Mortgage products. Most don’t adjust for five, seven or ten years and can make sense for homeowners with lots of equity if they plan to downsize or pay off the loan within that respective time frame.
6. Eliminate existing mortgage payments. The reverse mortgage can be used to pay off an existing “forward” mortgage to create additional cash flow and also strategically as a tax-free income source to defer taking Social Security, so you can get the maximum social security payment at 67. For those with stock portfolios that have appreciated, look at where the market is now. If you’re 60 or older and do not want to be forced to liquidate your portfolio, I would suggest looking at a reverse mortgage as a viable option and tool.
7. A balloon mortgage coming due: Long term loans having minimal or no amortization of the outstanding principal, and a due date (payoff date) earlier than the term are called balloon loans (or interest only loans). The loan principal is not self-amortizing; therefore, a lump sum principal payment is due at a point in time specified in the mortgage note agreement, or the outstanding principal balance will amortize over 20 years at a substantially larger payment.
8. Refinance out of an unconventional mortgage. Maybe when you bought your home, you could not qualify for a standard mortgage. The reasons vary, but sometimes a self-employed borrower may not have the income or documentation that would qualify them for a standard mortgage. Things change as time rolls on.

When you’re self-employed, depending on your business structure, the usual set up in terms of income distribution is to give yourself a salary and distribute any extra profit (either as a partner or LLC or sub-S). Then you have the discretionary “perks” such as health insurance, car leases, travel and entertainment, credit card payments and other personal/business items. You must have in mind that mortgage lenders look at consistency and two years is typically the standard, barring any program exceptions and special underwriting overlays. If you have paid yourself as a W-2 previously, you maintain that history, but if you become a consultant paid on a 1099, you have set your clock back two years because lenders want to see a two-year self-employment history. If your income was low in the previous year, take fewer expenses for the upcoming tax year if practically possible, beef up your income, pay the tax, and get the benefit of a better mortgage rate. Structure salary enough to qualify you for the mortgage financing you may be looking for down the line. Don’t change the business structure until you close on the loan!

Remember that low credit scores cost big bucks! Work on increasing your scores to get the most favorable mortgage deal.

Carl Guzman, NMLS #65291, is a CPA, mortgage banker, licensed real estate broker in New York and New Jersey, business advisor and the founder and president of Greenback Capital Mortgage Corporation, licensed in New York, New Jersey and Florida with over 217 five-star Zillow reviews. He excels at structuring complex residential and commercial mortgage and business financing solutions for the self-employed borrower, investor and first-time homebuyer. His clients value his expertise, creativity, professional guidance and ability to match the best financing alternatives to their financial goals. His advice has saved many clients hundreds!