There are a
number of benefits which may be associated with refinancing a home. While there
are some situations where refinancing is not the right decision, there are a
host of benefits which can be gained from refinancing under favorable
conditions. Some of these benefits include lower monthly payments, debt
consolidation and the ability to utilize the existing equity in the home.
Homeowners who are considering refinancing should consider each of these
options with their current financial situation to determine whether or not they
wish to refinance their home.
Lower Monthly Mortgage Payments
For many homeowners the possibility of lower monthly
payments is a very appealing benefit of refinancing. 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 refinance their home will likely see
the benefit of lower monthly mortgage payments resulting from the decision to
refinance.
Each month homeowners submit a mortgage payment. This payment is typically used to repay a portion of the interest as well as a portion of the principle on the loan. Homeowners who are able 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 due to the lower interest rate as well as the lower remaining balance. When a home is refinanced, 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 enables the homeowner to take out a smaller mortgage when they refinance their home because they are repaying a smaller debt than the original purchase price of the home.
Each month homeowners submit a mortgage payment. This payment is typically used to repay a portion of the interest as well as a portion of the principle on the loan. Homeowners who are able 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 due to the lower interest rate as well as the lower remaining balance. When a home is refinanced, 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 enables the homeowner to take out a smaller mortgage when they refinance their home because they are repaying a smaller debt than the original purchase price of the home.
For
instance, a refinance could extend the term of the loan from 15 years to 35
years, which would reduce monthly payments. For example, the monthly payments
of a RM 300,000 mortgage with a 4.5% percent interest rate would drop from
about RM 2,295 to RM 1,419 by changing from a 15-year loan to a 35-year loan.
Lower Interest
Payments
Basically
a bank will revise their product every 5 years and they will certainly be
changes in the market. Study the interest rates and you will be surprised
whether the interest rates have gone up or vice versa. With interest rates trending lower, it is a
good time to review, restructure and refinance your existing loans. This can
save you a lot of money. For example, if you reduce the interest rate of a
30-year RM 200,000 mortgage by just 1 percent--for instance, from 6 percent to
5 percent--you can save over RM 45,000 in interest payments.
Cash Out
Homeowners who have a considerable 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 improvements 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
imaginable. To apply for a cash-out refinance, you must have
positive equity; in other words, the market value of your home must be higher
than the balance on your current mortgage. 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 withdraw these finds at anytime during the draw period.
Debt Consolidation
Some homeowners begin to investigate refinancing 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. Most of homeowners doesn’t realize how much they can save their money and their time by consolidating their debt into one. They can even save up to twice of their saving.
When refinancing is done of the purpose of debt consolidation there is not always an overall increase in savings. Those who are seeking to consolidate their debts are often struggling with their monthly payments and are seeking an option which makes it easier for the homeowner to manage their monthly bills. For this reason, many homeowners often refinance their mortgage to minimize the amount of payments they are making each month.
Additionally, debt consolidation can also simplify the process of paying monthly bills. By settling of all of the other commitments, Homeowners can focus paying only her mortgage not needing to go other banks to settle of their debt.
