Do You Know Your Household APR?
Posted by: Mike Dulla, President, United Home Loans
We define Household APR as the blended rate of all debt you have adjusted for tax deductibility. Essentially, it is one very easy metric to evaluate the rate of interest you are paying across all debt.
Why is this important?
So many people ignore the interest rate on different debt obligations. Perhaps they have a great rate on their mortgage, but are paying 8% on their student loans and 15% on their credit card debt. Many times, there is an easy solution trapped in the equity of their current home which they are not accessing simply because they are not doing the math.
How do you calculate this?
Simply plug in the amount of the debt and the interest rate associated with it. The formula takes into account each debt, the percentage that debt represents compared to your total debt, and whether or not that debt is tax deductible. The final result is your weighted average interest rate across all debt, i.e. your Household APR.
If your Household APR is higher than the rates available on current mortgage offerings, you may want to consider a cash-out refinance to restructure some of your debt. When considering this, make sure you evaluate shorter term mortgage options such as a 15 or 20 year fixed. The shorter the term, the less interest you pay over the life of the loan (although that also comes with a higher monthly payment compared to a 30-year fixed). Contact United Home Loans at 708.531.8317 if you have questions about mortgage options or need help with your Household APR.