Why don’t I refinance?
Refinancing a mortgage or loan can lower the monthly payments owed on the loan either by changing the loan to a lower interest rate, or by extending the period of loan, so as to spread the re-payment out over a long period of time. The money saved in a refinance can be used to pay down the principal of the loan, thus further reducing payments. A refinance arrangement can be used to transform available equity in one's house into ready cash, available for other purposes or expenses. Another use of refinance is to reduce the risk associated with an existing loan.
Why should I refinance?
Applying a refinance arrangement to a loan or debt can assist in paying off high-interest debt such as credit card debt with a lower-interest debt such as that of a fixed-rate home mortgage. The net savings between the two interest rates can then be applied either towards further paying down the debt, or other purposes. In addition, non-tax deductible debt, such as credit card or car loan debt, can be transformed into tax-deductible debt such as home mortgage debt, potentially lowering one's taxes or shifting one into a more advantageous tax bracket. This is one type of a refinance arrangement.
Watch for penalties when you refinance
Certain types of loans contain penalty clauses triggered by an early payment of the loan, either in its entirety or a specified portion. In addition, there are also closing and transaction fees typically associated with a refinance or mortgage. In some cases, these fees may outweigh any savings generated through the refinance loan itself. Typically, one should only consider refinancing if one stands to save a substantial amount of money from doing so, either in the short or long-term, or if there is a need to extend the loan in order to pay for unexpected costs such as medical expenses.