Re-Financing's Benefits
There are a
number of benefits which may be associated with
re-financing a home. While there are some examples where
re-financing is not the correct decision, there are a
load 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 considering re-financing should think
about each of these options measured up with their
current financial situation to determine whether or not
they would be wise to 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 give in a mortgage payment. This
payment is typically used to repay a percentage of the
interest and of the principle on the loan. Homeowners
who are allowed to refinance their loan at a decreased
interest rate may see a decrease in the amount they are
paying in both interest and principle. This may be
caused by the lower interest rate as well as the lower
outstanding 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 former principle balance.
This allows the homeowner to take out a smaller mortgage
when they re-finance their home because they are
repaying a smaller debt than the original purchase price
of the home.
Debt Consolidation
Some homeowners begin to contemplate 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 allows the
homeowner to use the existing equity in their home as
collateral to secure a low interest loan which is big
enough to repay the outstanding 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 an overall increase in
savings. Those who are seeking to consolidate their
debts are often having trouble with their monthly
payments and are seeking an option which makes it easier
for the homeowner to manage 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
considerable amount of equity in their home may find
they are able to cash out some of this equity for other
purposes. This may include making improvements 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. Rather the funds
are made available to the homeowner and the homeowner
can withdraw these finds at anytime during the draw
period.
ABOUT
THE AUTHOR
Bob Schwartz, is a Certified Residential
Specialist, and a CA licensed
San Diego real estate broker with. Bob has
over 27 years of residential real estate experience,
authored a number of published articles and served as an
expert witness for
San Diego lawyers. You can contact Bob via
his highly popular
San Diego real estate website.
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