Refinancing Equity Loans
In this life, if one thing’s for certain, it’s that nothing is certain. The purpose of having savings is to provide for the future, which is unknown. There are undoubtedly going to be “bumps” along the road of life that can’t be foreseen. Whether the “bumps” are associated with the loss of a job, relocation, medical problems, etc. they have to be dealt with. The ability to refinance is often a solution to one or all of the “bumps” we encounter. Refinancing is not, however, solely associated with the negative externalities of life. A surge in income might present the opportunity to refinance one’s property so that it is paid off years before it previously would have been. Refinancing is a tool through which moneys can be reallocated so as to better an individual’s monetary position as it fluctuates.
In general, mortgages are paid over the course of a pre-determined time period through which one is contracted with the creditor. Throughout this pre-determined time period, lowered rates often result in the decision to refinance the initially agreed upon mortgage contract so as to reap the rewards of the newly established lowered rates. Such a degree of flexibility allows somebody the option to save a great deal of money when interest rates are low. Maybe it’s time for you to refinance.
For homeowners, it seems that there is always more work that need be done to keep their property in its best possible condition. Home improvements can be costly and extensive, but they continuously need to be done. There are some small projects that can be handled via the simplicity of a credit card or personal loan, however, for larger, more costly projects it makes sense for homeowners to utilize the equity that their home generates to get a further loan from their creditor. Once you have agreed upon a home equity loan with your creditor, as it happens with other loans, the interest rates will continuously fluctuate over time, possibly up, possibly down. When the interest rates drop, homeowners can choose to refinance their equity loan in order to take advantage of the generated savings.
In terms of refinancing when it comes to mortgages, there are 3 main factors to be considered:
1. Debt Consolidation: In the case of debt consolidation, the object is to unite debts into one system. In an age where consumer spending is dominated by credit, the average credit card or personal loan has an annual percentage rate of 18-22%. By consolidating the credit card payments with the loan, consumers are freed to use their savings for other purposes.
2. Lowering Interest Rate and Loan Term: Simply stated, lowered rates breed lower payments. In some cases such a lowering of payments produces a domino effect in which homeowners are able to reduce their loan term, keeping their payments as reasonable as possible. Lowering both the monthly principal and interest payments puts you in a situation to add the recognized savings to your payment, going directly to the principal. Any payment made that is extra from the minimum amount due helps to pay the loan off much faster, possibly saving thousands of dollars in the process.
Jon takes out a house mortgage loan of $80,000 at 12% interest to be paid over the course of 30 years. Jon’s monthly principal and interest payment is $822. If Jon were to add a dollar a day to his payments, he would pay off his loan faster and save thousands of dollars in interest. If Jon were to add $31 on top of the monthly mortgages in the given scenario, he would pay off his debt 7 years earlier and save approximately $58,828.
3. Cash Out: In a booming real estate market, homeowners would be wise to further the appreciation of the value of their property. To do this, homeowners refinance in effort to gain the money needed for the allowance of home improvements. A low home interest rate provides more “bang for your buck” than does a high interest credit card or personal loan.
The motivation that lies behind homeowners choosing to refinance their mortgage is born out of a want to save money. Whether refinancing your mortgage in effort to consolidate debt or reduce monthly payments, the ultimate goal is simply to line your pockets with a little bit more money each month. When current rates drop to lower prices, it has the potential to save you a lot of money if you make the decision to refinance.