Buying a home is very important to many people the world over. Because houses are such a big-ticket
Buying a home is very important to many people the world over. Because houses are such a big-ticket item -- for most people, the most costly item they will ever purchase in their lifetimes -- the biggest hurdle they must jump over is getting a mortgage loan just to buy a house.
Once a loan is obtained however, it does not automatically mean the homeowner has sto ed getting loa . Most homeowners refinance their mortgages from time to time, at least every 10 years if not much more frequently.
To refinance a mortgage is to replace it with a brand new loan, usually but not always from a different lending company. In so doing, the a licant (current homeowner) must go through a mortgage a lication proce similar to the proce of obtaining the original mortgage loan. Refinancing can be a very sound financial choice, if done for a ropriate reaso .
There are good reaso and times to refinance, and there are also bad ones. Good reaso for home mortgage refinancing may include: reducing monthly payments by taking advantage of lower interest rates or extending the repayment period; reducing the interest rate by switching from an adjustable-rate to a fixed-rate loan or from a balloon mortgage to a fixed-rate loa reducing the interest cost over the life of the mortgage by taking advantage of lower rates or shortening the term of the loan, and paying off the mortgage faster (accelerating the build-up of equity) by shortening the term of the loan.
It may be a good time to refinance a mortgage when it is po ible to get a better rate or a better loan product to fit your needs, and when there is no current prepayment penalty that would eat up equity by paying off the original loan. A bad time to refinance a mortgage would be when rates are currently higher than the loan is already fixed at, and when paying off the current loan would mean incurring a prepayment penalty to the lender.
While it is po ible, and many homeowners do it all the time, to use home equity to buy luxury items and finance vacatio , it is not nece arily smart. The house is an a reciating a et, so its equity should only be used to buy other a reciating a ets (such as other properties, or busine es) rather than items that are known to only lose value. It is not the best use of refinancing to get cash out to pay off credit cards that will only be ent up again due to out-of-control ending habits. It would be much smarter, for example, to use cash from a home to fix up the home and therefore increase its value, than to buy a luxury car that will depreciate as soon as it's driven off the dealership lot.
Gaining equity in a home is a wonderful thing; a solid investment. However, mortgage refinancing should not be viewed in terms of using a house as an ATM, because of the risk of dwindling equity -- a secure nest egg for the future -- for short-term inability to curb the desire for immediate gratification.
Once a loan is obtained however, it does not automatically mean the homeowner has sto ed getting loa . Most homeowners refinance their mortgages from time to time, at least every 10 years if not much more frequently.
To refinance a mortgage is to replace it with a brand new loan, usually but not always from a different lending company. In so doing, the a licant (current homeowner) must go through a mortgage a lication proce similar to the proce of obtaining the original mortgage loan. Refinancing can be a very sound financial choice, if done for a ropriate reaso .
There are good reaso and times to refinance, and there are also bad ones. Good reaso for home mortgage refinancing may include: reducing monthly payments by taking advantage of lower interest rates or extending the repayment period; reducing the interest rate by switching from an adjustable-rate to a fixed-rate loan or from a balloon mortgage to a fixed-rate loa reducing the interest cost over the life of the mortgage by taking advantage of lower rates or shortening the term of the loan, and paying off the mortgage faster (accelerating the build-up of equity) by shortening the term of the loan.
It may be a good time to refinance a mortgage when it is po ible to get a better rate or a better loan product to fit your needs, and when there is no current prepayment penalty that would eat up equity by paying off the original loan. A bad time to refinance a mortgage would be when rates are currently higher than the loan is already fixed at, and when paying off the current loan would mean incurring a prepayment penalty to the lender.
While it is po ible, and many homeowners do it all the time, to use home equity to buy luxury items and finance vacatio , it is not nece arily smart. The house is an a reciating a et, so its equity should only be used to buy other a reciating a ets (such as other properties, or busine es) rather than items that are known to only lose value. It is not the best use of refinancing to get cash out to pay off credit cards that will only be ent up again due to out-of-control ending habits. It would be much smarter, for example, to use cash from a home to fix up the home and therefore increase its value, than to buy a luxury car that will depreciate as soon as it's driven off the dealership lot.
Gaining equity in a home is a wonderful thing; a solid investment. However, mortgage refinancing should not be viewed in terms of using a house as an ATM, because of the risk of dwindling equity -- a secure nest egg for the future -- for short-term inability to curb the desire for immediate gratification.
