Refinancing Home Loan Benefits
Posted on August 30, 2010
Filed Under Debt Relief, Loans | Leave a Comment
When many people consider refinancing a mortgage loan, they often wonder if they should refinance their home loan or not. There are many reasons to refinance a home, so when considering a refinance, it is important to make sure that there is a benefit to the new home loan. Without a benefit to the new mortgage, there is no need to refinance.
Lower Monthly Home Mortgage Loan Payment
One of the main reasons people consider a refinance home loan is to lower the monthly payment. Refinancing can save you money per month by decreasing the loan payment. The rule of thumb is that a refinance home loan is good if the home mortgage payment decreases by at least 5%. So, if your current home loan payment is $1000, then the new home mortgage loan would need to have a payment no higher than $950. Many home loan companies will not approve a refinance if there is not a benefit to the new mortgage loan and many lenders use the 5% rule as to determine if the new home mortgage loan has a benefit or not.
Lower the Mortgage Term
One of the most common refinancing reasons is to lower the term. Many homeowners will refinance from a 30-year mortgage to a 15-year mortgage in order to payoff the home loan faster. By refinancing into a 15-year loan, not only do you save money on the interest rate, but you will save money over the lifetime of the home loan. With current interest rates low, 15-year mortgages have become a popular option for many homeowners.
Cash Out Home Loans
For many consumers, a cash out mortgage is a great opportunity to use the equity in their property to pay off debts, do home improvements or to just get some extra cash out. A cash out mortgage refinance can help lower total monthly debt payments by consolidating credit cards, car loans, installment loans and mortgage loans into one payment. By consolidating debts into one payment, many homeowners have saves thousands per month.
Escrow Accounts
A home mortgage refinance can also be used to catch up a homeowner on their escrow account or help pay off any delinquent property taxes. At times, some homeowners can get behind on their escrow accounts because property taxes and homeowner’s insurance premium change yearly. If the escrow account becomes too short, many home loan companies will increase the month payment in order to catch up on the negative escrow account. Sometimes the increase home loan payment is over $500. By refinancing, the homeowner has the ability to restructure the escrow account.
Also, if a homeowner is behind on property taxes, a refinance could help pay the property taxes.
Finally, it is important that when considering a refinancing home loan, that there is a benefit to the new mortgage. Without a benefit to the new mortgage loan, many mortgage companies will not approve the loan. So whether you are looking to lower your rate, lower your monthly payment, lower your loan term or take cash out, talk to your home mortgage loan originator to see what benefits you have in refinancing.
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