Reducing consumer debts will ease anxiety and open the door for
better rates on a home loan or mortgage. Unfortunately, becoming
debt-free is a long process, and it may take several years to
achieve this goal. If you own a home, refinancing your existing
mortgage - even with poor credit - may present extra cash to
payoff high interest credit cards.
What Does it Mean to Refinance a Home Mortgage?
Refinancing a home loan is an everyday practice. There are
several reasons to contemplate a refinancing. For starters, if
you attain a cash-out refinancing, the mortgage company will
hand over a lump sum of money at closing. Prior to this,
homeowners apply for a new home loan, which replaces the old. In
addition to creating a new mortgage, homeowners also borrow
money from their home's equity. For example, refinancing an
existing $125,000 mortgage, and borrowing $25,000 of the home's
equity will produce a new mortgage of $150,000.
Advantages of Refinancing an Existing Mortgage
If your intent is to become debt-free in the shortest amount of
time, refinancing your home is a great alternative. High
interest credit cards are difficult to eliminate. Unless you are
able to make large payments, it may take ten to twenty years to
payoff a $2,000 credit card balance. Moreover, a new mortgage is
great for acquiring funds to make home improvements, build a
savings account, or plan for retirement. Homeowners with poor
credit may increase their credit rating upon reducing or
eliminating consumer debts.
When is the Best Time to Refinance?
For many homeowners, now is a good time to refinance their
current mortgage. Individuals who obtained home mortgages before
rates began to decline are likely paying two or three percentage
points above the current average. Refinancing for a lower rate
may decrease your mortgage payment. Moreover, refinancing may
eliminate private mortgage insurance.
With low mortgage rates, refinancing for a fixed rate or
interest-only option may be favorable. Before refinancing, count
the costs. Remember, refinancing will entail paying closing
costs. If the monthly savings are insignificant, or you plan on
moving in less than five years, you will not benefit from a refi
loan.
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