There are many benefits a homeowner can take advantage of by refinancing.
What is Refinancing and Why You Should Go for it?
Mortgage rates are at an all-time low these days. New home buyers are benefitting greatly with these low rates of interest as they have to pay lesser amount of money every month in the shape of EMI to their lender. This results in a huge saving over a long period of time as mortgage loans are for 25, even 30 years of duration. If you have availed a mortgage loan form a bank earlier but now feel jealous of your friends who have to pay lower EMI’s for their loans, refinancing is your best option.
Refinancing is the buzzword in the housing market these days. If you do not know what it means, it is a financial product that allows an individual to take a new loan that covers his earlier mortgage loan. He now pays a lower EMI and that too for a shorter period of time to get much needed monetary relief. The new mortgage replaces the old one completely and you are now required to repay the money to the new lender. Thousands of homeowners reeling under the burden of heavy repayment have taken advantage of refinancing and living a relaxed life. Take a look at the following important benefits that accrue to you if you get refinancing from a lender.
It reduces your monthly repayments
If you have availed mortgage loan at a higher rate of interest earlier, you are paying a high EMI. If you are finding it difficult to pay this high EMI month after month, refinancing comes as a boon for you. It helps in lowering your monthly repayment which you can manage easily and use the money you save in this fashion on other essential expenses. Most of the homeowners who go for a refinance are the ones interested in lowering their EMI’s.
You get a lower rate of interest
This is the main reason why you pay less both at the time of availing a new mortgage and on the whole during the entire duration of the mortgage. Even a slight decrease in rate of interest can lower the amount you repay to your lender over a long period of time by a considerable amount of money. There are many websites with mortgage calculator that you can use to see how much money you are going to save if you get a refinance from another lender at a lower rate of interest.
Pay off your loan quickly
This is another advantage of refinancing at a lower rate of interest. If you are not lured by a reduced EMI, you can still benefit immensely by availing a refinanced of your mortgage. Instead of agreeing to a reduced EMI, you can continue to pay the same EMI to finish off your loan obligations much earlier than the duration of the earlier mortgage. Imagine being able to repay your mortgage in just 15 years instead of the long 25 year period for which you had availed the loan in the first instance.
Get some money for personal use
There are many homeowners who would find it hard to believe that it is possible to get some cash out of equity build up in their home through refinancing. You can understand this phenomenon with the help of an example. You bought a home worth $300000 a few years ago. Its value appreciates to $400000. You availed mortgage on the lower value. Now you are eligible to get a mortgage on the new price of the home. This means you now have an extra $100000 in your hands that you can use on home improvements to further increase the value of your property. This is like having a double benefit from refinancing. On the one hand you get a better rate of interest and on the other hand get a chance to take out cash from the equity built up in your home. You can also use this built up equity to pay off your debt. If you are running balances in your credit cards, you are being made to pay a huge penalty carrying a large rate of interest. Why pay this penalty when you can take off cash from your home and repay such loans?