Refinance – Mortgage Refinancing Benefits
Refinancing typically involves acquiring a secured loan in order to (1) pay off one or multiple loans against the same property or (2) receive a lesser interest rate in order to reduce monthly payments and/or the term of the mortgage.
There are many benefits of refinancing a home along with multiple types of refinancing options.
Benefits of Home Refinancing
It’s likely that your mortgage payment is the largest monthly expense for your household. Finding ways to reduce costs with your mortgage and help put extra money back in your pocket in the long-run. When you refinance your mortgage, you can take advantage of the equity in your home and enable this to take place.
Refinancing can be useful to reduce interest costs, to extend the repayment term, to pay off other debts, and to reduce repayment risks.
Reduced Interest Costs, Lower Payments
By refinancing your existing mortgage when interest rates are lower (even just a quarter-percent), you can lower your overall monthly mortgage payment.
Extend Your Repayment Period
Refinancing can allow you to extend the repayment terms of your loan, allowing you to spread out debt over a longer period of time. For example, say your original mortgage was a 30-year mortgage and you have been paying it for five years. By refinancing, you can shorten the term of your loan to either 10, 15, or 20 years and save thousands of dollars in interest along the way. And, if you refinance at a lower rate, you can opt to maintain the same monthly payment in order to build up equity in your home more quickly, because more of your payment will be going towards principal.
Pay Off Other Debts & Get Access to Cash
Refinancing is a great way to pay off outstanding debts. Consider a home owner who owes a monthly mortgage, car payment and credit card bill. Refinancing can help this homeowner lump all debt into one bill and therefore reduce otherwise incurred interest rates.
You can also put money in your pocket by drawing out equity in your home, via a cash-out refinance. This money is yours to pay off a student loan, fix up your home, etc.
Reduce Payment Risks – Get a Fixed Interest Rate
Refinancing out of a volatile variable rate (one that fluctuates with the market trends) to a fixed-rate loan (same rate over time) can save thousands of dollars over the term of the loan, especially in today’s ever-changing market.
Get Rid of PMI – Finally
If you didn’t make an initial 20% down payment when you first purchased your home, you were probably given the ‘gift’ of Private Mortgage Insurance, or PMI. PMI is the lenders way of insuring themselves in case the purchaser is not able to repay the loan via a small monthly fee, in addition to your mortgage. It usually falls off after 4 or more years of payment but refinancing also provides a quicker way to remove this monthly fee. If your house value has appreciated and you have paid down some mortgage, you may now have more than 20% in your home. If you refinance, you will no longer need PMI.
Regardless of the reason, refinancing is useful to improve overall cash flow. If you are knowledgeable about the benefits of refinancing, you can use your houses equity and the markets changing interest rates to your advantage.
Sources: Wikipedia – http://en.wikipedia.org/wiki/Refinancing – MortgageLoan.com – http://www.mortgageloan.com/refinance-mortgage
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