Home Refinancing

Does refinancing make sense for you and your situation? What is it and what does it involve? Refinancing occurs when a homeowner decides to replace his existing mortgage or home loan with a new one. Typically, this is done to obtain a lower interest rate so that the homeowner can save money. However, a variety of reasons could also make refinancing an attractive option for you.

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Home Refinancing

(Continued) existing loans can provide the convenience of having only one monthly loan payment to worry about. Why bother with payments for a first and a second mortgage when you can combine the two into one convenient payment? Not only will you save the aggravation of writing out two checks, but also, you might save some money in the process.

With a refinanced loan, you might be able to take advantage of lower payments. If the interest rate is low enough, it might shave off a few dollars from the monthly payment. Alternatively, if you are having trouble paying on your existing loan, you could refinance for a longer term, effectively cutting your monthly payment to a smaller amount. This frees up some cash that can be used for other daily living expenses or that well-deserved vacation that you'd like to take.

Consolidating debts is perhaps one of the best reasons for refinancing. Not only do you eliminate multiple monthly payments, but also, you typically gain the added perk of a lower total monthly payment output. Ideally, you might also gain a tax advantage if you itemize on your tax return. Interest charges on home loans are tax deductible, whereas the interest charges that you pay on credit card debt are not tax deductible.

Perhaps you currently have an adjustable rate mortgage (ARM) and you don't like the way that your monthly payment goes up. True, you knew about this when you signed up for the loan, but you've grown a bit tired of it. The fixed payments that you could gain with a refinanced loan could provide some relief from rising interest costs as well as a reduction in your stress level.

If your original lender required you to obtain private mortgage insurance, or PMI, it might be time to eliminate it. Although your original lender might have notified you that you are no longer required to purchase PMI, the necessary changes might not have been made yet. Refinancing now could eliminate PMI as well as provide you with a better interest rate.

Whenever you refinance, make sure that you check out all of the new conditions. Does the new loan have a prepayment penalty? Are there any hidden costs? Once you have the money from your refinanced loan, pay off your debts in full. Then, it will be time to sit back and enjoy the luxury of one monthly bill, lower monthly bill payments, or both.

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