Sometimes in life, we’re hit with unexpected expenses and are forced to get creative to come up with the funds. As a homeowner, you learn quickly that your home is a valuable source of income. The more monthly payments you make on your mortgage, the more offers you’ll get for home equity loans.
If you’re going to use your home equity, it’s incumbent upon you to be wise about it. Your home is more than likely your most valuable asset, and the last thing you want to do is risk it for an unworthy cause. However, if you’re looking for a way to pay for home renovations, buy an investment property, or lower your monthly payments, refinancing your home loan could be the way to go.
What is refinancing?
While refinancing your home is a great way to lower your monthly payments and get money for home renovations, it’s not something you should undertake lightly. It will more than likely cost you some of your home equity, which, as you learned in the introduction, is a powerful tool.
Equity is the value of your ownership in your home. You won’t own your home outright until you pay the entirety of your home loan and the interest, but you get equity in your home when you make your down payment. The best way to break down home equity is to think of it as what you would get in the sale of your home.
Refinancing is the process of restructuring your home loan based on what you owe. Another way of putting it is to say refinancing is trading in your current home loan for a new loan at a loan amount equal to what you owe on the home’s principal.
A typical mortgage loan is 30 years long. If you’ve been paying on your home for 15 years, you could significantly reduce your mortgage payments by refinancing the rest of your current mortgage into a new mortgage.
Some people use refinancing as a way to pay for home improvements.
Even if you don’t need to lower monthly payments, that’s not the only reason to refinance home loan rates. Another reason for trading in your existing loan for a new loan is to pay for home improvements. Doing renovations is an easy way to run a tab up to tens of thousands of dollars, but you can use refinancing as a way to finance your home improvement project.
Your home equity could be the way to pay for the in-ground pool and retractable awning you’ve always wanted in your backyard. While you’re searching through the most stylish pool designs and retractable awnings Columbus Ohio has to offer, you won’t have to worry about cost with your home equity to back you up.
Pay off your current mortgage quicker.
Believe it or not, one of the most common reasons people decide to refinance their current mortgage is to pay it off quicker. When you get a promotion or enter a career field with a substantial pay increase, it makes sense to shorten your current mortgage if you can afford the higher monthly payments.
It’s important to shop around to make sure you get the best possible home loan and interest rate. You might find better terms if you go with someone other than the lender who holds the title on your current mortgage.
Refinancing your mortgage is a great way to fund a rental property.
The best reason to refinance your mortgage loan, other than lower your mortgage payments, is to get the funds for a down payment on a rental property. When you use your mortgage loan for a rental property, refinancing becomes an investment rather than a new home loan. As you can see, of all the financial products you have outside of liquid assets, your home is the most reliable.