Refinancing your house involves a sizeable upfront cost. Fortunately,
those initial fees can turn into a real savings for you if you secure
lower rates. You can also add more money to your budget by reducing your
payments. And finally, you can put your equity to good use by
consolidating high interest bills or investing in your future by paying for
college or home repairs.
1. Save Money With Lower Rates
For most people planning to refinance, the goal is to save money with
reduced rates. This may mean converting your original mortgage to a
fixed or adjustable rate home loan. With fixed rates, you get security of a
steady rate and monthly payment. Adjustable rates can be lower, but can
change as the market rates rise and fall.
To get the most out of refinancing, you usually need to stay in your
home for at least seven years. In some cases, you can break even on
closing costs sooner, especially if you selected a no fee loan.
2. Increase Cash Flow With Lower Payments
Reducing monthly payments is another reason to refinance. Lower rates
can push down your monthly mortgage bill, but so can extending your loan
period. In the long run, lengthening your loan term will cost more in
interest, but it can save your budget.
Another way to temporarily reduce your payments is to select an
interest only loan. For a year or two, you can just make small interest
payments on your mortgage, allowing you to save money. This makes sense for
those who plan in a year to sell or see a dramatic increase in their
income.
3. Put Equity To Good Use By Cashing Out
For most people, they are house rich, but cash poor. By pulling out
your equity during refinancing, you can use your equity to consolidate
bills or pay for college or home repairs. Eliminating your high interest
credit card debt will help out your monthly budget. Investing in your
future will pay off in future dividends.
To really understand the cash benefit of refinancing, request a loan
quote from a lender. Then analyze your monthly and interest savings with
a mortgage calculator. From these numbers, you can decide if
refinancing is worth it.
View our recommended mortgage refinance lenders online.
Also, check out our recommended online home equity line of credit lenders, or view our recommended sources for a one time free credit report.
