Why refinancing at 6.5% can save you $582 per month when your true interest rate is 9.2% Sarah Chen still remembers the day she locked in her 3.5% mortgage rate in March 2021. She'd been house hunting in Salt Lake City for months, watching prices climb week after week. When her offer was finally accepted on a charming Millcreek home, she felt like she'd won the lottery twice—once for getting the house, and again for securing what everyone called an "incredible" interest rate.
Two years later, when her financial advisor suggested she consider refinancing, Sarah's response was immediate and incredulous: "Are you crazy? Why would I give up this amazing rate?"
But here is what Sarah didn't realize at the time: while she was protecting her 3.5% mortgage rate like a precious family heirloom, she was bleeding money everywhere else. She had $35,000 spread across three credit cards at an average of 22% interest, costing her $1,200 per month in minimum payments. Her car loan carried an 8.5% rate with $650 monthly payments on the remaining $28,000 balance.
Sarah thought she was being financially savvy by holding onto that low mortgage rate. In reality, her "cheap" mortgage had become the most expensive decision she could make.
The Great Mortgage Rate Illusion
Sarah's story illustrates one of the most common financial blind spots I encounter in my work with Utah home loans at ClearPath Utah Mortgage. Homeowners become psychologically anchored to their mortgage rate—that single number becomes their financial “North Star,” even when it's leading them in the wrong direction.
This anchoring bias is powerful and understandable. Your mortgage rate is probably the largest and most visible interest rate in your financial life. It is the number you negotiated for, the rate you celebrate when it is low, and the benchmark you use to evaluate other financial decisions. But focusing solely on this number is like judging a football team's performance by looking only at their quarterback's statistics while ignoring the final score.
The hidden cost of "cheap" money becomes apparent when you step back and look at your complete debt portfolio. Sarah's wake-up moment came when she finally added up all her monthly debt payments and realized she was paying over $3,100 every month across three different loans, with an effective blended interest rate that would shock most homeowners.
In my time at ClearPath Utah Mortgage, I have seen this scenario countless times. Homeowners get anchored to their rate number and miss the bigger financial picture. My job is to help them see the total cost of their debt portfolio, not just one piece of it.
The Blended Rate Reality Check
Before we dive into Sarah's numbers, let's define "blended interest rate" in simple terms. Your blended rate is the weighted average interest rate across all your debts, taking into account both the interest rate and the balance of each loan. It is the true cost of your borrowed money when you look at your finances holistically.
Here is how Sarah's debt picture looked before refinancing:
BEFORE REFINANCING:
Mortgage: $1,260 (3.5% on $280,000)
Credit Cards: $1,200 (22% on $35,000)
Auto Loan: $650 (8.5% on $28,000)
TOTAL: $3,110/month
Blended Rate: 9.2%
Now, here is what happened when we modeled a refinancing scenario that would allow Sarah to pay off her high-interest debt using her home's equity:
AFTER REFINANCING:
Mortgage: $2,528 (6.5% on $400,000)
TOTAL: $2,528/month
SAVINGS: $582/month | $6,984/year
Let that sink in for a moment. By "giving up" her precious 3.5% mortgage rate and accepting a 6.5% rate instead, Sarah would save nearly $7,000 per year. The math was undeniable, even if the psychology was difficult to accept at first.
Why a "Bad" Rate Can Be Smart Strategy
This counterintuitive truth—that a higher mortgage rate can lower your total costs—challenges everything most homeowners believe about debt management. But it makes perfect sense when you understand the power of debt consolidation through home equity.
Credit cards and auto loans are unsecured or depreciating-asset debt, which means lenders charge higher rates to compensate for increased risk. Your home, however, serves as collateral for your mortgage, allowing lenders to offer significantly lower rates. When you have substantial equity in your home, you can effectively "trade" expensive debt for cheaper debt.
The historical perspective is important here too. While 6.5% might feel high compared to the ultra-low rates of 2020-2021, it's still reasonable compared to past decades. I've helped clients who remember 12% and 15% mortgage rates in the 1980s and 90s. Today's "high" rates would have been considered fantastic just 20 years ago.
The right mortgage isn't about the lowest rate—it is about the smartest total financial strategy. Sometimes that means accepting a higher mortgage rate to dramatically improve your overall financial position.
Leveraging Home Equity Strategically
Sarah's situation was made possible by the unprecedented home appreciation that occurred across Utah and much of the country since 2020. Many markets saw 40-50% increases in home values, creating equity windfalls for homeowners who had purchased before the surge.
Sarah's Millcreek home, purchased for $420,000 in 2021, had appreciated to approximately $600,000 by 2023—an equity gain of $180,000 in just two years. This wasn't money she could spend at the grocery store, but it was wealth that could be strategically deployed to improve her financial position.
There are several smart ways to use home equity in 2025, including paying off high-interest debt, making strategic home improvements that add value, building emergency funds, or investing in appreciating assets. The key is using this equity purposefully rather than letting it sit idle when heading into 2026.
I always tell my clients that equity sitting unused is an opportunity cost, especially when they are paying 22% on credit cards. Your home's equity is working capital that can transform your financial picture when deployed correctly.
Beyond Interest Rates: Total Financial Health
The benefits of Sarah's refinancing strategy extended far beyond the monthly payment savings. Improved cash flow creates breathing room in your budget, allowing you to handle unexpected expenses without reaching for credit cards. Having one simplified payment instead of juggling multiple due dates reduces both administrative burden and psychological stress.
Perhaps most importantly, the extra $582 per month gave Sarah options. She could rebuild her emergency savings, increase retirement contributions, make extra mortgage payments to build equity faster, or invest in other opportunities. This financial flexibility is invaluable and impossible to achieve when you are trapped in high-interest debt cycles.
It is important to note that consolidating credit card debt into your mortgage may affect your tax deductions. Credit card interest isn't deductible, but mortgage interest often is, depending on your specific tax situation. This can provide additional savings beyond the rate differential, though you should consult with a tax professional to understand the implications for your circumstances.
Leveraging Home Equity Strategically
The rapid appreciation in Utah's real estate market created unique opportunities for homeowners willing to think strategically about their equity. From 2020 to 2023, many Utah markets saw home values increase by 40-50%, with some areas experiencing even higher appreciation rates.
This wasn't just a Utah phenomenon, but our state's strong job market, population growth, and limited housing inventory created particularly favorable conditions for homeowners. Sarah's experience—gaining $180,000 in equity in two years—was remarkable but not unusual during this period.
However, I always counsel clients that equity should be used wisely. While it can be tempting to view home equity as "found money," it is actually wealth that should be strategically deployed. The best uses typically include:
• Paying off high-interest debt (credit cards, personal loans, auto loans)
• Strategic home improvements that add value (kitchen renovations, additional bathrooms, energy efficiency upgrades)
• Building substantial emergency funds (3-6 months of expenses
• Investing in diversified portfolios or retirement accounts
The worst uses of equity are typically lifestyle inflation—buying boats, luxury cars, or vacations that don't improve your long-term financial position. I always tell my clients that equity sitting unused is an opportunity cost, especially when they are paying 22% on credit cards. Your home's equity is working capital that can transform your financial picture when deployed correctly.
Who Should And Shouldn't Refinance
After helping hundreds of families navigate these decisions through Utah home loans, I have identified clear patterns in who benefits most from this strategy and who should avoid it.
Good candidates typically have:
• Current mortgage rates below 4% with significant equity growth $20,000 or more in high-interest debt (credit cards, auto loans, personal loans) Solid, stable income with debt-to-income ratios under 43% At least 20% equity in their home, preferably 30% or more Plans to stay in their home for at least three years Strong payment history and credit scores above 640
Red flags that suggest this strategy isn't appropriate:
• Planning to move within two years (closing costs won't be recovered)
• Recent job loss, income reduction, or employment instability
• Minimal high-interest debt (under $15,000)
• Little to no equity growth since purchase
• Recent completion of another cash-out refinance
• History of running up credit card balances after paying them off
At ClearPath Utah Mortgage, we typically recommend this strategy when the monthly savings exceed $400 and the break-even point is under 24 months. The numbers either work clearly in your favor, or they don't—there is rarely a gray area when you run the math properly.
The Implementation Roadmap
If this strategy sounds like it might work for your situation, here is the step-by-step process I use with my clients:
Step 1: Calculate Your Blended Rate - List all your monthly debt payments and outstanding balances. Include everything: mortgages, credit cards, auto loans, personal loans, and student loans. Calculate the weighted average interest rate across all debts. This gives you your true cost of borrowing and establishes your baseline for comparison.
Step 2: Get Current Home Value - Obtain a recent comparative market analysis or automated valuation. If you're serious about proceeding, consider getting a professional appraisal. Home values can change significantly, and your equity position determines how much debt you can consolidate.
Step 3: Model Before vs. After - Create a clear comparison of your current total monthly debt payments versus a single, consolidated mortgage payment. Factor in the new payment amount, remaining term, and total interest over the life of the loan. The monthly savings should be substantial and immediate.
Step 4: Factor Closing Costs And Timeline - Refinancing typically costs 2-3% of the loan amount in closing costs. Calculate your break-even point—how long it takes for monthly savings to exceed these upfront costs. Also consider current rate trends and lock periods to time your application optimally.
Step 5: Professional Consultation - Work with an experienced mortgage professional who specializes in debt consolidation strategies. Coordinate with a financial advisor to understand tax implications and ensure the decision aligns with your long-term financial goals.
I walk every client through this exact process. The numbers either work clearly in your favor, or they don't. There's no gray area when you run the math properly, and that clarity makes the decision much easier.
Sarah's Transformation
Six months after Sarah completed her refinancing, the transformation in her financial life was dramatic and measurable. Let's look at the before and after:
Before Refinancing:
• Total monthly debt payments: $3,110
• Constant financial stress from juggling multiple due dates
• Credit cards consistently maxed out
• Zero emergency savings
• Credit utilization above 80%
• Declining credit score
After Refinancing:
Single mortgage payment: $2,528 Monthly cash flow improvement: $582 Financial breathing room and reduced stress
Six Months Later, Sarah Had:
• Built a $15,000 emergency fund
• Maintained zero credit card debt
• Increased her credit score by 85 points
• Started investing $300 per month in retirement accounts
• Gained confidence in her financial decision-making
The psychological benefits proved as valuable as the financial ones. "I used to lie awake at night worrying about making all these different payments," Sarah told me during a recent check-in. "Now I have one payment, money in the bank, and I actually look forward to checking my credit score."
But perhaps Sarah's most telling comment came when she reflected on her initial resistance to the strategy: "I was so focused on protecting that 3.5% rate, I didn't realize it was costing me thousands. Kelly showed me the math, and suddenly everything clicked. This wasn't about giving up a good rate—it was about finally having a smart financial strategy."
The Right Strategy For The Right Person
The right mortgage isn't about achieving the lowest possible rate—it is about creating the most effective total debt strategy. For homeowners carrying high-interest debt while sitting on substantial home equity, refinancing to a higher mortgage rate can be the smartest financial move they'll ever make.
This strategy isn't appropriate for everyone, and it requires careful analysis of your complete financial picture. The math needs to work clearly in your favor, you need sufficient equity to make consolidation worthwhile, and you need the discipline to avoid running up new high-interest debt after paying off the old.
But for the right homeowner in the right situation, the results can be transformative. Monthly cash flow improvements of $500-800 aren't uncommon, and the long-term financial benefits—improved credit scores, emergency savings, increased retirement contributions—compound over time.
After helping hundreds of Utah families navigate these decisions at ClearPath Utah Mortgage, I have learned that the smartest financial moves aren't always the most obvious ones. Sometimes protecting a low rate costs more than giving it up. Sometimes a higher payment is actually a lower payment. And sometimes the best financial strategy requires you to challenge your assumptions about what "good debt" really means.
When you are ready to see if this strategy makes sense for your situation, the math will tell the story. And the math never lies.
Kelly is a mortgage professional at ClearPath Utah Mortgage (NMLS #2510508), specializing in strategic refinancing and debt consolidation. For a personalized analysis of your debt consolidation options, contact ClearPath Utah Mortgage to discuss your specific situation.
