Are you looking for a way to finance your kids college educations? Do you dream of taking the vacation of a lifetime? Would you like to purchase a new vehicle and perhaps be able to deduct the interest from your federal taxes? Would you like cash for home improvements? Maybe you are interested in having a way to buy your new dream house while your current house is still on the market waiting to be sold? If any of these circumstances apply to you, you are probably thinking about getting a refinance mortgage loan.
What does it mean to refinance your mortgage?
As the name implies, it means that you renegotiate your loan. Usually, refinance mortgage loans are taken out by people who wish to tap into the equity they have built up by paying down the principal on their mortgage. For this reason, refinance mortgage loans are also sometimes referred to as home equity loans.
What exactly does it mean to have equity in your home? That means that your home is worth more than you owe. If the market value of your house is, for example, one hundred thousand dollars, but you only owe eighty-five thousand, you have fifteen thousand dollars worth of equity in your home.
Many lenders are willing to offer a refinance mortgage loan if you have equity in your house, and you may choose to refinance to get cash for something you want or need such as a vacation, home improvements, or a college fund. You may also decide to refinance simply because it makes good financial sense. A lot of times, people have to take less-than-ideal mortgage terms when they are buying their house, either because they have bad credit or little credit when they first take out their home loan.
As time goes on, however, you may have a better credit history or the prime interest rate may be lower than it was when you first bought. If the prime rate is lower, you are likely to be able to refinance your mortgage loan at a lower interest rate and show a significant savings with reduced monthly payments or a lifetime interest savings of thousands of dollars.
Does it make good sense to refinance your mortgage loan? For some people it does; for others, there is no real advantage. If you are considering tapping into your home's equity, be sure to discuss all your refinance options with a good financial planner and understand what exactly the pros and cons are for your particular situation.
Many people find a refinance a viable alternative to taking out other costly loans that may not have the same tax benefits as a home equity loan. Some refinance mortgage loans even have a lower interest rate than government-backed student loans, so it pays to take a look at all your options and make the best decision for you.
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Marcilio David is a Cardiologist and Internet Entrepreneur. Learn more tips and tricks about choosing the best mortgage, and a FREE Mortgage Ebook download at The Mortgage Guide
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