Two Main Reasons To Refinance Your Home Loan
There are several reasons you might consider refinancing your home loan but it comes down to just one of two types of situations: Either you are getting better terms or taking equity out of your home. The particular details of your situation and of the present market conditions will have some impact but it really comes down to one of these two things.
There are a few reasons that you might think to get better terms but they come down to either the property value increasing or you have gained a larger equity stake. There are good reasons to withdraw equity and there are some less good reasons.
Take Advantage Of Better Terms
You might want to change the payment structure of your loan. If there is a balloon payment that you can pay it off. When you have an adjustable rate that has reset and you can get a fixed rate mortgage that gives you more certainty as the future rates look likely to be more expensive.
Withdrawing Equity From Your Home
A good reason to refinance to withdraw equity would be to invest it in an income property. Another reason might be to pay off a high-interest credit card balance. Or you may be looking to do some home improvement that will increase the value of your home. The poorer reasons include things like taking expensive vacations, buying a boat or a racehorse.
There are plenty of good reasons to refinance your home and plenty of finance companies and banks that will be more than happy to help you do it. The equity in your home can be a useful tool and you can leverage it into smart investments by shopping around for more favorable terms. The secret behind home loan refinance is that over the lifetime of a typical thirty-year home loan you are paying a huge amount of interest.
Some Interesting Facts About Interest
The way that mortgage finance works is that interest in due on the balance of the loan and the rest of your payment goes to your principle. Your initial payments are almost entirely interest. Over the full lifetime of a thirty year loan you will pay almost enough for two houses, even at the current low interest rates.
When you refinance there will be a finance charge that is around 3% of your loan, which is added to the balance. Even so, you could potentially save the price of a couple of new cars by refinancing with a ½% lower rate, which will reduce your monthly repayment.
Faster Repayment Means Lower Rates
If you chose to refinance for a shorter term, say you go from a thirty year fixed rate to a fifteen year fixed rate, two things will happen. First lenders will give you a slightly better rate because they like it when you pay back the loan more quickly.
Second the larger payments on a shorter-term loan will pay down the balance more quickly reducing the interest you pay; you will pay much less interest over the lifetime of the loan. So, by cutting the term in half you will increase your payments but they will not be doubled.
Talk to your bank or finance company to find out the exact numbers. Depending on the present market and your particular circumstances and your monthly budget you could save a considerable amount over the lifetime of your loan.