Refinancing your home is a great way to gather capital from your home in order to consolidate debt, lower your monthly mortgage payments, to even make use of the equity in your home. Whatever case applies to your current situation, it is important that you determine which scenario is most accurate given your reasoning for refinancing in order to avoid a mess the refinancing process.
Refinancing for Existing Home Equity
If you have a considerable amount of existing equity in your home, you may be able to cash out in order to obtain capital that can be used for your own personal reasons. For example, many homeowners cash out of the equity in their homes in order to take a dream vacation, start a business, make improvements to their home, or even pay for their children's education.
There is no limit to the ways in which you can use the equity in your home. Additionally, your equity can be considered as a home equity line of credit that is separate from a traditional loan given the fact that the funds from your equity line of credit are not dispersed all at once. Instead, your funds are made available for withdrawal anytime during what is considered the draw period.
Refinancing for Debt Consolidation
Many homeowners consider refinancing as a way to help consolidate their existing debts. In many cases, this rings especially true for those homeowners whose monthly payment on outstanding debts is causing great financial strain. By taking out a debt consolidation loan, you can use the existing equity in your home as the collateral that you will need in order to secure a loan that will cover the amount of money you need to pay off your debt as well as secure a low interest loan large enough to cover the current balance on your home.
By using your home equity to pay down your debt, this is a great way to help increase your savings since any additional monies that would have went to pay off your debt can now go towards repaying your new loan terms and put away for emergency spending.
Refinancing for Lower Monthly Payments
If you find yourself living paycheck to paycheck, refinancing your home loan is a great way to obtain lower interest rates that will result in a lower monthly mortgage payment. Typically your mortgage payments consist of paying both a portion of the principle on the loan as well as the interest. If you refinance your loan, you can take out a second mortgage to repay the first mortgage. Doing so allows you to repay a smaller debt then your original loan when you purchased your home.
