Refinance mortgage loan debt consolidating
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When used carefully, it can also be a valuable tool in getting debt under control.Before you refinance, take a careful look at your financial situation and ask yourself: How long do I plan to continue living in the house? (For more information, see .) Again, keep in mind that refinancing costs 3% to 6% of the loan's principal.
Reducing your interest rate not only helps you save money, it also increases the rate at which you build equity in your home, and it can decrease the size of your monthly payment.It takes years to recoup that cost with the savings generated by a lower interest rate or a shorter term.So, if you are not planning to stay in the home for more than a few years, the cost of refinancing may negate any of the potential savings.These homeowners may justify such refinancing by pointing out that remodeling adds value to the home or that the interest rate on the mortgage loan is less than the rate on money borrowed from another source.Another justification is that the interest on mortgages is tax deductible.One of the best reasons to refinance is to lower the interest rate on your existing loan.
Historically, the rule of thumb was that it was worth the money to refinance if you could reduce your interest rate by at least 2%.
For example, a 30-year fixed-rate mortgage with an interest rate of 9% on a 0,000 home has a principal and interest payment of 4.62.
That same loan at 6% reduces your payment to 9.55.
Refinancing a mortgage means paying off an existing loan and replacing it with a new one.
There are many reasons why homeowners refinance: the opportunity to obtain a lower interest rate; the chance to shorten the term of their mortgage; the desire to convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa; the opportunity to tap a home's equity in order to finance a large purchase; and the desire to consolidate debt.
While these arguments may be true, increasing the number of years that you owe on your mortgage is rarely a smart financial decision, nor is spending a dollar on interest to get a 30-cent tax deduction.