By Bob Schwartz, CRS, GRI, San Diego real estate
broker
�2007
Broker For You
All rights reserved.
There are numerous advantages which may be associated with re-financing a home.
While there are some examples where re-financing is not the correct decision,
there are a host of benefits which can be won from re-financing under favorable
conditions. Some of these advantages include lower monthly payments, debt
consolidation, and the ability to employ the existing equity in the home.
Homeowners who are contemplating re-financing should look at each of these
options measured up with their current financial situation to determine whether
or not they would be wise to re-finance their home.
Lower Monthly Payments
For many homeowners the possibility of lower monthly payments is a very
appealing benefit of re-financing. Many homeowners live paycheck to paycheck and
for these homeowners finding an opportunity to increase their savings can be a
monumental feat. Homeowners who are able to negotiate lower interest rates when
they re-finance their home will likely see the benefit of lower monthly mortgage
payments resulting from the decision to re-finance.
Each month homeowners submit a mortgage payment. This payment is normally used
to repay a part of the interest and of the principle on the loan. Homeowners who
are allowed to refinance their loan at a decreased interest rate may see a
decrease in the amount they are paying in both interest and principle. This may
be due to the decreased interest rate as well as the lower left over balance.
When a home is re-financed, a second mortgage is taken out to repay the first
mortgage. If the existing mortgage was already a few years old, it is likely the
homeowner already had some equity and had paid off some of the former principle
balance. This allows the homeowner to take out a smaller mortgage when they
re-finance their home because they are repaying a smaller debt than the original
purchase price of the home.
Debt Consolidation
Some homeowners begin to investigate re-financing for the purpose of debt
consolidation. This is particularly true for homeowners who have high interest
debts such as credit card debts. A debt consolidation loan permits the homeowner
to use the existing equity in their home as collateral to secure a low interest
loan which is large enough to repay the current balance on the home as well as
various other debts such as credit card debt, car loans, student loans, or any
other debts the homeowner may have.
When re-financing is done for the purpose of debt consolidation there is not
always a general increase in savings. Those who are trying to consolidate their
debts are often struggling with their monthly payments and are seeking an option
which makes it simpler for the homeowner to take care of their monthly bills.
Additionally, debt consolidation can also simplify the process of paying monthly
bills. Homeowners who are hesitant about taking part in monthly bill pay
programs may be overwhelmed by the amount of bills they have to pay each month.
Even if the cost of these bills is not worrisome just the act of writing several
checks each month and ensuring they are sent, on time, to the correct location
can be overwhelming. For this reason, many homeowners often re-finance their
mortgage to mitigate the amount of payments they are making each month.
Using the Existing Equity in the Home
Another prevalent reason for re-financing is to use the existing equity in the
home. Homeowners who have a significant amount of equity in their home may be
able to cash out some of this equity for other purposes. This may include making
upgrades to the home, starting a business, taking a dream vacation, or pursuing
a higher degree of education. The homeowner is not restricted in how they can
use the equity in their home and may re-finance a home equity line of credit
which can be used for any purpose you can think of. A home equity line of credit
is different from a loan because the funds are not given to you all at once.
Instead, the funds are made available to the homeowner and the homeowner can use
these finds at anytime during the draw period.
ABOUT THE AUTHOR
Bob Schwartz, is a Certified Residential Specialist, CA licensed real estate
broker with www.Brokerforyou.com. Bob
has over 27 years of residential real estate experience, authored a number of
published articles and served as an expert witness for
San Diego legal firms. You can contact Bob via
e-mail at brokerforyou@gmail.com or visit his highly popular
San Diego real estate website at:
http://www.brokerforyou.com
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