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Here are five compelling reasons you should pay down any outstanding loans as quickly as possible.
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- Decrease Your Monthly Payment
If rates have dropped since you purchased your home, or if you choose a lower-rate adjustable mortgage, refinancing will lower your monthly payment, allowing you to save, spend or invest more money each month.
- Get Cash Out of Your Equity
Once you have built up enough equity in your house, a "cash-out" refinance can give you a large sum of money to invest or to use for a vacation, college tuition, home improvements or a major purchase.
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- Fix Your Rate and End Rate
Adjustment Anxiety
If you have an adjustable rate mortgage and worry about your interest rates and payments increasing, a refinance could move you into a fixed rate loan, giving you predictable fixed payments until your loan is repaid. Or, if rates have dropped since you financed your home, refinancing into a fixed-rate loan would guarantee you low rates and payments for the remaining life of your loan.
- Consolidate Debt
Refinancing can help you regain control of your personal debt. In the process of refinancing, you may be able to pay off other debts and consolidate all your debt into one mortgage loan, thereby significantly decreasing your interest on credit card debt. You may also be able to take a tax advantage on more interest by consolidating your debts into a mortgage. See 5 reasons to pay down debt.
- Get Out of Debt Sooner
You may be able to refinance your current loan to a shorter term or a bi-weekly payment plan without significantly raising your payment, particularly if rates were high when you bought your home. The advantage here is that you could save thousands of dollars in interest and own your home many years earlier than you would otherwise.
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