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San Diego real estate library
Re-Financing's Advantages
There are numerous benefits which
may be associated with re-financing a home. While there are some
situations where re-financing is not the best decision, there
are a ton of benefits which can be gained from re-financing
under favorable conditions. Some of these advantages include
lower monthly payments, debt consolidation, and the ability to
employ the existing equity in the home. Homeowners who are
thinking about re-financing should consider each of these
options measured up with their current financial situation to
determine whether or not they should re-finance their home.
Lower Monthly Payments
For many homeowners the possibility of lower monthly payments is
a very appealing benefit of re-financing. Many homeowners live
paycheck to paycheck and for these homeowners finding an
opportunity to increase their savings can be a monumental feat.
Homeowners who are able to negotiate lower interest rates when
they re-finance their home will likely see the benefit of lower
monthly mortgage payments resulting from the decision to
re-finance.
Each month homeowners submit a mortgage payment. This payment is
usually used to repay a portion of the interest and of the
principle on the loan. Homeowners who are allowed to refinance
their loan at a reduced interest rate may see a decrease in the
amount they are paying in both interest and principle. This may
be due to the lower interest rate as well as the lower left over
balance. When a home is re-financed, a second mortgage is taken
out to pay off the first mortgage. If the first mortgage was
already a few years old, it is likely the homeowner already had
some equity and had paid off some of the old principle balance.
This permits the homeowner to take out a smaller mortgage when
they re-finance their home because they are paying back a
smaller debt than the original purchase price of the home.
Debt Consolidation
Some homeowners begin to investigate re-financing for the
purpose of debt consolidation. This is particularly true for
homeowners who have high interest debts such as credit card
debts. A debt consolidation loan permits the homeowner to use
the existing equity in their home as collateral to secure a low
interest loan which is large enough to repay the existing
balance on the home as well as numerous other debts such as
credit card debt, car loans, student loans, or any other debts
the homeowner may have.
When re-financing is done for the purpose of debt consolidation
there is not always a total increase in savings. Those who are
looking to consolidate their debts are often having trouble with
their monthly payments and are looking for an option which makes
it simpler for the homeowner to take care of their monthly
bills.
Additionally, debt consolidation can also simplify the process
of paying monthly bills. Homeowners who are apprehensive about
participating in monthly bill pay programs may be overwhelmed by
the amount of bills they have to pay each month. Even if the
value of these bills is not worrisome just the act of writing
several checks each month and ensuring they are sent, on time,
to the correct location can be overwhelming. For this reason,
many homeowners often re-finance their mortgage to minimize the
amount of payments they are making each month.
Using the Existing Equity in the Home
Another popular reason for re-financing is to use the existing
equity in the home. Homeowners who have a significant amount of
equity in their home may find they are able to cash out some of
this equity for other uses. This may include making changes to
the home, starting a business, taking a dream vacation, or
pursuing a higher degree of education. The homeowner is not
limited in how they can use the equity in their home and may
re-finance a home equity line of credit which can be used for
any purpose imaginable. A home equity line of credit is
different from a loan because the funds are not disbursed all at
once. Instead, the funds are made available to the homeowner and
the homeowner can use these finds at anytime during the draw
period.
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