The Advantages of Mortgage Refinance

You may be among the many borrowers who have a 25- or 30-year mortgage loan. If you have been religiously paying your monthly mortgage for more than five years, then you may want to enjoy one of the key benefits of being a homeowner: taking out a refinancing loan.

Raising Money for Some Purpose:

Mortgage refinancing is particularly useful if you have to raise a substantial amount of money for a felt need. As you pay your mortgage, you accumulate equity in your home. Your equity, which is what remains when you deduct the balance from the current value of the house, increases as the property value rises and as the principal is paid down.

This capital is locked in the house. Unless you want to sell your home, you can release this equity through mortgage refinance. Although there are so many types of consumer loans, you may find that a refinancing is less expensive because it is secured by your home equity. Besides, interest costs, mortgage refinancing are tax-deductible, an advantage not found in other consumer loans.

Taking Advantage of Lower Interest Rates:

If interest rates are lower, it is also another great reason to take advantage of refinancing. For instance, suppose you took out a fixed-rate loan during a period of high interest. You can arrange a new loan at the prevailing lower rate, which would significantly reduce your monthly payments.

It is possible the seller arranged for your loan at the time you bought your home. Many of these 'seller-provided' loans have balloon payment terms that expire in a few years. Through refinancing, you can rearrange the loan period to a longer maturity thus assuring yourself of long-term financing.

If you have an adjustable-rate mortgage, you may also want to refinance with a fixed-rate during a period when rates go down. This allows you to lock in the more favorable rate and protect yourself against the risk of rate increases, going forward.

Paying for Major Home Improvements:

Refinancing your loan is a good way to provide the money to cover the costs of major improvements to your home. The improvements should add more value to your home, and this is a good way to invest money. Although there are other ways to finance home improvements, in the end this may be the cheapest source.

Tapping Equity before Home Sale:

Can be beneficial before selling your home. If the interest rates are low, you may get a refinancing loan that your buyer can assume. If rates rise before you sell, or tight credit makes mortgage loans harder to obtain, the assumable refinancing loan becomes an added attraction and increases the resale value.

You have to remember, though, that you will need to pay for costs such as application fees, discount points, and other various charges. You will have to consider these costs before you decide to refinance. The savings generated from mortgage refinance should exceed the costs to make economic sense. These savings are realized gradually, so you should remain house long enough to fully recover the costs from mortgage refinance.

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