Mortgages Refinance Can Make Sense

2007-03-08 10:33:40

( Financial )



As a general rule, you should not make second mortgages refinance your home. The reason for that is refinance loan rates are usually higher than first mortgage loan rates.

Still, the consumer loan market has become more favorable to you because many lenders are offering equity loan refinancing. You can make good use of refinancing loans to raise capital for your business or to put in additional improvements to your home. That makes sense because by shoring up your business you increase your income potential, and by making home improvements you add to its value.

Since refinance loan rates are always lower than unsecured debt like credit cards, you can use refinancing loans to raise cash to pay off high credit card debt. You will save a lot on interest payments and thus keep more of your monthly income at your disposal.

But there are times when federal interest rates are low, which impact on equity loan refinancing rates. If you have a high-rate first mortgage and prevailing refinance loan rates are much lower, then it makes sense to use equity loan refinancing to pay off your first mortgage. If you decide to make second mortgages refinance your home, you may want to consider these:

• Compare the refinancing loans fees and terms of several lenders. Look at the refinance loan rates and cost of refinancing from each lender.
• Choose a fixed-rate second mortgage if you plan to hold the loan for at least seven years.
• Avoid a loan with a repayment penalty. Some lenders will charge you a fee if you repay more than one-fifth of your loan during the first five years.

When you make second mortgages refinance your home, you should also consider arranging for a shorter-term mortgage. Many mortgage refinancing companies will allow you to do that and give slightly lower interest rates, which will then save you a lot of interest money over the life of the loan.

This means, however, that your monthly payments will not change much from your original monthly payment (which helps you, in a way, because it keeps you from spending the money). By making second mortgages refinance your home, you can make the life of your loan shorter, and quite possibly you will pay off the mortgage well before your retirement.


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