Mortgage Refinancing
When you purchase a home with a home loan you agree to loan terms (eg. rate, amortization, pay off time etc...). Circumstances change in all of our lives, and we can use a mortgage as a tool to help us financially. When this need arises, then refinancing your mortgage might be a great way to help you get ahead financially.
Mortgage refinancing is when you pay off an existing mortgage with a new mortgage. The new mortgage might have better terms (eg. better rate, different amortization etc...), or a lower loan to value, or a higher balance, each matched to your specific requirements. Just replacing one loan with another in and of itself has no value. When there is a purpose behind the refinance, value is created.
When does refinancing make sense? (Or why refinance?)
When you achieve a specific benefit from doing so. This might seem obvious, but let's spell it out:
- You need a lump sum of money for something.
eg. Starting a new business, buying a car for the kids, paying for college, buying a dream boat etc... this is called a cash out refinance loan.
- You can get more beneficial terms.
You may have gotten your home mortgage when rates were high, and now when rates are lower, you can lower your monthly payment, or pay your mortgage off quicker making the same payment because you'll have less interest to pay. This is called a rate and term refinance.
- You have high credit card bills.
Since credit cards have high interest rates, a short pay off time frame, and is not tax deductible, their payments are very high. Before you know it you can be over your head in monthly obligations. By refinancing with a debt consolidation loan, you can sometimes reduce your monthly payments by several hundred, if not thousands, of dollars per month. The interest on your home mortgage is tax deductible too. Credit card interest is not tax deductible.
- Your ARM mortgage rate is going up.
You may have gotten an adjustable rate mortgage (ARM) when the LIBOR index was low. Now that the index has gone up over a hundred percent in two years, your mortgage payments are constantly rising as your ARM adjusts higher. Since long term mortgage rates are still low, refinancing into a fixed rate mortgage may save you money in the future.
- You want to improve your home.
Your family may have grown, or grandma wants to move in, and it is time to add another bedroom to the house. Or a swimming pool, or anything that is a home improvement. Instead of paying cash for this addition, you would refinance and get a home improvement loan.
- Tap your equity.
You may already have an excellent home mortgage, and do not want to refinance. Your property value has increased over the last few years, and you want to plan for a rainy day. When the value on your home is higher than what you owe on your mortgage, it is called equity. Or home equity. Equity however does not pay bills. If you want to get to your equity, you can either refinance, or you can get a home equity line of credit.
This is a form of financing where an equity line of credit is set up, secured by the equity in your home. You get a checkbook and a credit card. If you need money, you write a check, or use the card. The balance on your equity line will then increase. You can pay off your line of credit, and then use it again. This is an excellent tool if you want to buy investment real estate.
- You may have suffered a life event that caused your credit to be damaged, and now you need to refinance. Then you may have to get a bad credit refinance loan.
If you live in East Cobb county in Georgia, and looking to do mortgage refinancing in Marietta then click here.
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