A mortgage refinance loan is a prime financial tool for homeowners to consider to improve their overall financial situation. By leveraging their home equity homeowners have the opportunity to reduce their debt ratio, reduce their monthly payments and improve their cash position. The following are some top reasons why homeowners should consider a home refinance loan.
1. Tax Benefits from Refinancing
The interest paid on mortgage loans secured to property, for the most part are tax deductible and offer homeowners the ability to claim the interest paid on their tax returns. This gives the homeowner the ability to take all their loans in which they are paying non-tax deductible interest on, such as credit card debt, car payments, installment loans, and roll them up into a mortgage refinance loan or second mortgage. This would provide long-term savings, allow customers to pay less interest. Most importantly this makes the interest that they have to pay, work for them instead of against them, by making it tax-deductible interest. This will improve the homeowner's financial position.
2. Debt Consolidation with Refinancing
Many homeowners today have increased their debt load by the widespread availability of credit cards or home equity lines of credit. Typically, a household may have 6 to 10 credit cards from banks or retail outlets paying revolving interest (interest charged and added back onto their balance every day). A debt consolidation mortgage or home loan, will allow a homeowner to consolidate all their outstanding debt into their mortgage payment, thus not only reducing their monthly payments, allowing for only 1 monthly payment, but also greatly reducing the amount of interest paid over the course of the loan.
3. Switch to a Fixed Rate
Some homeowners have adjustable rate mortgages, or power option ARM loans, to help them start with initial lower monthly payments or get into a larger home. This was a good strategy when interest rates were low but now rates have been moving higher (resetting) and many homeowners are noticing their monthly mortgage payments are increasing by hundreds of dollars. It may make sense to lock into a fixed rate mortgage loan, even if it means raising your monthly payment to gain the stability with a consistent monthly mortgage payment that will not rise.
4. Cash Out Refinance
Homeowners today can find themselves strapped for cash especially when medical, legal or other emergencies arise, or if they are considering educational, investment, or vacation type expenses, in which they need quick access to cash. By using the equity in their home one can refinance and obtain in cash the difference between the house value and loan amount, For instance, if your home is appraised at $150,000 and your mortgage balance is $100,000 you could refinance at the appraised amount and take $50,000 in cash to do with as you please. The cash out mortgage refinance loan will allow homeowners to gain access to cash quickly and spend, as they need. The added benefit to this type of "cash out" loan is that the interest paid can be an added tax deduction in the household.
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