The business of refinancing a home
The business of refinancing a home is huge both in the United States and abroad.The practice of refinancing a home has dramatically increased and still remains very common. The explanations for this rise in refinancing home mortgages can be as a result of many factors.
Many years ago, people didn’t believe in burdening themselves with debt and did not accumulate any either because they had no use for refinancing. After acquiring a mortgage, people made busy with work to pay that home loan off quickly. They made sacrifices and spent less whenever possible to completely pay off the full amount of the loan. The subject of refinancing a home never crossed their minds as their ultimate goal was to be debt free.
Today things have changed;the standard of living has gone up and while commodity prices escalate,salaries tend to remain the same. Gone are the happy days when one could purchase a house and pay it off in a short pace of time. Today, people struggle to make ends meet and have embraced the practice of refinancing – a most common practice among those who are financially stable but still face financial hardships.
Why Do People Refinance Home Mortgages?
Listed are common reasons why others refinance a home. These may help you in your decision regarding refinancing home loans.
- To Get Rid Of A Mountain Of Credit Debt:
People usually take on a second mortgage to help pay off huge debts brought about by credit cards. Let’s do a little role play here. Let’s pretend you have credit card debt of $10,000 with 18% interest.Every year you will give the credit card company $1800 and don’t think that this has anything to do with the principal. No, that’s just the interest. Anyway,should you decide to take the refinancing route, you could add that debt to your mortgage, which would hike your monthly mortgage payments but your interest rate would be lower.
- College Loans: Financing an education is expensive. Tuition at local Colleges or State Universities have skyrocketed to more than $3,000 per semester and there are people who are tapping into the equity in their home to defray the cost of a college education. This may not be the right solution,but it’s the most economical way to fund a college education.
- Home Renovations or Repairs:Some people refinance to renovate their homes or to accomplish much needed repairs like a leak in the roof,basement repairs and remodeling,bathroom and kitchen facelift. So, they dip into their home equity.
Still Wondering Whether Refinancing Is for You?
Reasons for refinancing a home mortgage varies across the board,still you should be cautious. There are people who refinance several times to pay off debts brought about by credit cards. Should you find yourself in such a position,you should revisit your money management practices and control your spending habits.There are times when refinancing may be necessary. And,there are times when reasons for refinancing are not warranted.
Refinancing is like buying your house for the very first time at its current value; and it can be an answer to your debt crisis if you’re in debt. It is necessary though,to get all information as to any restrictions or obligations which maybe required of you. Read and question what you don’t understand because you don’t want any surprises later. Always examine and rethink your actions.
Fixed Rate Versus Variable Rate
Gone are the days when people chose fixed rates over variable rates because of the low locked-in interest rates and fixed monthly payment for a set term. Today, a 5 year fixed rate does not sound enticing as it once did even with low variable rates. A 1% reduction on a mortgage loan of $250,000 would help you keep more money in your pockets. Maybe a whopping $200 or more on a monthly basis which would be welcomed by most households who are struggling to make ends meet.
Many people opt in for a fixed rate mortgage for security reasons. No one wants to relive the mayhem of the 2010 housing bubble when mortgage rates spiraled upward forcing many homeowners to lost their homes to foreclosure. Today many consider fixed rate mortgages because of the fear that they may have to deal with high interest rates.
If you are a risk taker then by all means Variable Rates may suit you as there’s some risk involved. You will also benefit because, variable rate mortgages allow homeowners to keep more money in their pockets. This money can pay off bills or go towards the principal of the loan helping you to reduce the term of the loan.
Will Interest Rates Rise?
Some Economists predict that interest rates will stay moderately low. No one knows for how long; but the economy needs stimulating now and then therefore low interest rates are always welcome.
Bear in mind that this refinancing knowledge is solely to inform and help raise awareness. Consult the Experts before making any commitments to sign up for a mortgage loan and your choice of fixed or variable rates. Choosing a variable rate means you will have monthly payments that differ. It will never be a set amount. Or,based on the terms of your loan, interest rates and the principal and interest will either increase or decrease monthly. Though these monthly amounts may not be a big deal you need to be aware of these monthly fluctuations so, you can mention them to your mortgage broker as you decide on whether refinancing is a good idea.