| What
does it mean to refinance your mortgage? Is it the same as renewing your
mortgage, which happens every few years when your mortgage comes due?
| | | No, to refinance is not
the same as to renew. To refinance typically means to re-negotiate your
mortgage, often even before it comes due, and at the same time to increase the
amount of the mortgage. By refinancing you take even more money out of your
house, and that money can be used to repay other debts, so to refinance your mortgage
can be a form of debt consolidation. | Is it a good idea
to refinance my mortgage?For some homeowners it is a good idea to refinance
your mortgage. If you have a lot of high interest rate debt, increasing
the amount of your mortgage by refinancing it, and then using the money to repay
your other debts, can save you thousands of dollars in interest each year. These
savings come in three ways: - The interest rate on a mortgage is lower
than the interest rate on a credit card, so by refinancing you lower the interest
rate you are paying.
- Next, the term of a mortgage is often 25 years, which
means you now have 25 years to repay the debt. If you refinance your mortgage
to repay the $20,000 you owe on high interest rate credit cards, and take out
a 20 year mortgage, you have 20 years to repay $20,000. That's about $1,000 per
year, plus interest. If you got a conventional non-mortgage loan at the bank,
the maximum term would probably be five years, which means you would be repaying
the loan at the rate of $4,000 per year plus interest, so obviously your monthly
payments would be much higher.
- Finally, if you live in the United States,
you mortgage interest may be tax deductible, which creates even greater savings
for you.
As you can see, mortgage refinancing can be very beneficial,
but you must be careful. Remember, a mortgage is a charge against your house.
If you don't make your payments, the lender can take your house, so you should
only refinance if you are sure you can make the repayments as agreed. However,
if you have equity in your house, and you have a good source of income, the mortgage
refinance option is a great form of debt consolidation.
You can read more
about mortgages and debt consolidation in our article about Mortgage
Loan Debt Consolidation, and by using our search box:
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