Advantages of Refinancing
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There has been a lot of focus lately on the fact that the first time home buyer tax credit has been extended, and and expanded to include some who have not bought a home yet. However, in all of this interest over buying a home, it is also important to consider refinancing. There are a number of advantages associated with refinancing. Dale Siegel, a mortgage expert, offers some advantages of refinancing in her recent book, The New Rules for Mortgages:
- Lower mortgage interest rate: If you can get an interest rate of a point lower, it can be worth your while to refinance. You’ll pay less in interest, and less overall.
- Shorten your mortgage term: If you are interested in shortening the amount of time you have to pay a mortgage, you can refinance to a lower term, such as a 10, 15, or 20 year loan. Just be sure you can afford the higher payments.
- Reduce monthly payment: You can actually reduce your mortgage payment by refinancing to a longer term. This way, you spread out your payment, and lower how much you owe each month. However, you will pay more overall.
- Consolidate debt: In some cases you can use a cash-out refinance to consolidate debt and make it easier to pay down. Just make sure that you understand the implications, and that you change your debt habits so that you aren’t just getting in deeper.
- Use the equity in your home: Refinancing can help you access your home equity for use on home improvement projects, or to pay other expenses.
- Pay down principle: You can also use a refinance as a chance to pay down some of the principle on your home, reducing how much you pay in the long run in terms of interest, and increasing your home equity.
It is important to carefully consider the costs associated with refinancing, and make sure that the benefits outweigh the costs.
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