Define What Refinancing is?
Refinancing is the process of paying off your existing loans out of the proceeds of a new mortgage. Refinance is a better option if it lowers down mortgage interest rate and property owner gets access to equity in their property. Most people refinance when they have equity into their property, which is the difference between the amount owed to the mortgage company and the current value of subjected property.
It is important to note that refinancing is to helps borrowers to pay off existing high rate debt or where the property owner wants to convert a variable rate mortgage into a fixed rate mortgage or vice versa and by changing the mortgage gets a lower rate of interest. However, refinancing may prove to be risky for borrowers with not so good credit history or bad credit history because they might not be able to get the same rate they have if their credit is bad or not at par with required standards.
Advantages of Refinance
Refinancing allows you to access up to 80% of your home's value after deducting any outstanding mortgages. When you are in need of additional funds, it will cost you lower to use the equity in your property rather than taking a conventional loan. Your home equity can be used for:
- Home renovation
- Children's education
- Purchasing an additional property
- Investing in stocks
- Buying a vehicle
- Other miscellaneous expenses
There are numerous ways of accessing such equity by breaking the mortgage, obtaining a home equity line of credit or mixing or extending your mortgage with your current lender.
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Lowers your Mortgage Rate
Refinancing is a good option if it helps in lowering interest rates on an existing mortgage and loans whereas it saves you money over the period, however, how much you will be able to save using lower interest rate depends upon the penalty and the size of your outstanding mortgage. If you are holding a variable rate mortgage, you may pay three months of interest as a penalty. In case of holding a fixed rate mortgage, you will have
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Debt consolidation has become a major reason for refinancing. It allows homeowners to pay off their debts for, e.g., credit cards, car loans, a line of credit and other loans by using the existing equity in to their property. By consolidating all debts into one mortgage, not only the total amount of monthly payments will get reduced, but also the higher interest paid debts will included in the mortgage.
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