Benefits of Re-Financing
By Bob Schwartz, CRS,
GRI ©2005
www.brokerforyou.com All rights reserved.
There are a number of benefits which may be associated
with re-financing a home. While there are some instances
where re-financing is not the right 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 use the existing equity in the home.
Homeowners who are thinking about re-financing should
look at each of these options measured up with their
current financial situation to determine whether or not
they should re-finance their home.
Cut 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 generally 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 lower
interest rate may see a decrease in the amount they are
paying in both interest and principle. This may be
caused by the decreased interest rate as well as the
lower remaining 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 previous 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 especially
true for homeowners who have high interest debts such as
credit card debts. A debt consolidation loan enables 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 existing balance on the home as well
as a number of 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 total increase in
savings. Those who are seeking to consolidate their
debts are often having difficulties with their monthly
payments and are seeking an option which makes it easier
for the homeowner to manage their monthly bills.
In addition, debt consolidation can also make simpler
the process of paying monthly bills. Homeowners who are
nervous 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 a
problem just the act of writing numerous 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
lessen 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
worthwhile amount of equity in their home may find they
are able to cash out some of this equity for other
purposes. This may include making modifications to the
home, starting a business, taking a dream vacation, or
pursuing a higher degree of education. The homeowner is
not limited 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 disbursed all at once. Rather, the
funds are made available to the homeowner and the
homeowner can take out 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 lawyers.
You can contact Bob via e-mail at bob@brokerforyou.com
or visit his highly popular
San Diego real estate website
at:
http://www.brokerforyou.com
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