Carlsbad California real estate
Benefits of Re-Financing
There are various advantages which may be associated with re-financing a home. While there are some examples where re-financing is not the right decision, there are a load of benefits which can be won from re-financing under favorable conditions. Some of these benefits include lower monthly payments, debt consolidation, and the ability to utilize 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 should re-finance their home.
Cut 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 portion of the interest and of the principle on the loan. Homeowners who are permitted 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 due to the reduced interest rate as well as the lower remaining 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 previous 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 especially 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 a number of 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 general increase in savings. Those who are looking to consolidate their debts are often having trouble with their monthly payments and are seeking an option which makes it simpler for the homeowner to take care of their monthly bills.
Additionally, debt consolidation can also abridge the process of paying monthly bills. Homeowners who are nervous about taking part in monthly bill pay programs may be overwhelmed by the amount of bills they have to pay each month. Even if the cost of these bills is not troublesome just the act of writing various checks each month and ensuring they are sent, on time, to the right location can be overwhelming. For this reason, many homeowners often re-finance their mortgage to lessen the amount of payments they are making each month.
Using the Existing Equity in the Home
Another common 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 be 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 restricted 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 take out these finds at anytime during the draw period.
NOTE: The opinions expressed in this article are the author's own and do not necessarily reflect the opinions of this website or Brokerforyou/Promotions Unlimited.
Disclaimer: The information provided in this article is general information on the legal issues presented and should not be regarded as a substitute for individual legal advice from an attorney.
The above article is presented as a community service with the permission of the author.
Disclaimer
The information presented in this web site is of a very general nature, provided for general informational purposes only. It should therefore not be relied upon to address individual legal concerns, as each client's situation differs. Because each situation is different and the law is constantly changing, you should consult with a Lawyer well versed in this field. The benefits and risks of taking or not taking any legal action can be assessed only after consultation with a Lawyer. By providing the information in this web site, we do not intend to any make any promises or give any assurances about the outcome of your individual situation, and none should be presumed. Prior to retaining a lawyer, one should check with The State Bar. Any information provided or contact received from this web site does not constitute a client/Lawyer relationship.
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