Why Consider Refinancing?

There are times that refinancing a loan is a good thing. Why consider refinancing? Well, for one thing if done correctly it can save you money. Another reason to refinance would be tax advantages. There are times when a larger tax deduction out weighs having a low balance. Why consider refinancing, let’s discuss this further.




You own your home. Payments have been made on this loan for almost 30 years and the interest deduction is not much of anything. You are mostly paying down the principle of the loan at this point. The thought of refinancing has never crossed your mind, but it should. Why consider refinancing your home? In this instance, refinancing will give you a larger tax deduction for interest paid. If you can get a reasonable rate on a refinanced loan, you pay mostly interest during the first half of the loan. This will increase the amount you can deduct on your taxes. However, you should consult a tax professional about your particular situation before making a big decision like this.




Another reason to consider refinancing your home is the interest rate on your loan. What are you paying now in interest? Were you taken in by those low adjustable rate offers? A lot of us jumped at those low rates. Now we are paying a lot more than we thought. Why consider refinancing in this situation? If you can get a rate that is at least a full percentage point lower than what you are paying now, it is worth your while to refinance. You will save money in several ways. First of all, your interest rate will be lower. This alone will lower your monthly payments. In addition, if you only refinance what you still owe, it will be less than your first loan. This again will save you a little money. Refinancing will release the money held in escrow to you. If you are paying insurance, taxes and PMI as part of your current mortgage, refinancing will release all of this money back to you. If you still ask why consider refinancing -- think more money in your pocket.




What type of loan do you have? Is it an ARM (adjustable rate mortgage)? Maybe there is a balloon payment due in a year or so. Do you own your home outright or have a lot of equity built up? These are all good reasons why you should consider refinancing. If you have a loan with a balloon payment, you should look into refinancing long before that balloon payment becomes due. Why consider refinancing this type of loan? Well, those balloon payments can be significant. If you do not have the money to pay it off, then you need to refinance. You should start doing this at least 1 year prior to the balloon date to give yourself time to obtain alternate financing. Even if you do have the money for the payment, it may be wiser to hold onto your cash and refinance. There are tax advantages to carrying a mortgage that may make it attractive in your situation. I don’t have an ARM or a balloon payment due? Why should I consider refinancing my home? If you are a senior citizen and could use the money tied up in the value of your home to pay for medical and living expenses, you may want to refinance or take out a loan called a reverse mortgage. This type of refinance will give you the cash you need now. However, it means that your estate may have to pay off the loan, so keep this in mind. Another reason to refinance is to convert the equity in your home into cash. If you need to remodel, make a major purchase or pay for college, a refinanced loan may be the best way to go. Many times you can get a lower rate, and if you use your current lender, they don’t run employment or income checks if your loan is in good standing.




The best reason to refinance is to put cash in your pocket. No matter what your situation is, there is most likely a loan program for you. Properly done, refinancing can do wonders for your financial situation. Hopefully, we have answered the question why consider refinancing?