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What is Refinancing and How Can it Benefit You?

Aug 21, 2008
At times, we all feel that the world is starting to close in on us. Bills keep piling up, or suddenly you're faced with the prospect of a pay cut at work (or worse, you just lose your job). At these moments, it's important to weigh every possible option for simply staying afloat financially. One of the simplest ways to immediately have access to some ready cash is refinancing the mortgage on your home. Over the years, a homeowner pays a tiny little chunk of the mortgage each month. There are different length mortgages running anywhere from fifteen to fifty years, but every little payment represents a larger portion of your home that you own. Concurrently, with each payment, the bank owns less. Eventually, after you make your last payment, all of the equity in the home is yours. Obviously, many people don't reach this point until much later in their "financial" lives.

There are two kinds of refinancing to consider. The first is called "rate and term" refinancing. Here's the most basic definition of this option: You started your mortgage with thirty years of payments to worry about. Let's say that was fifteen years ago; that means you're halfway through. If you suddenly find that, for whatever reason, you can't keep up with your mortgage payment, this might be the option for you. For a small fee, you can extend the length of your mortgage. This way, you're using the equity in your house. Imagine a rubber band: when you refinance, you're stretching the length, but at the same time, there's less to account for each month.

With the current state of the economy, there's another reason to consider this option. Interest rates have never been lower than they are today, so when you refinance, you may be able to take advantage and secure a lower rate than you locked in with your original mortgage. That means you could actually save money over the long run, while lowering your monthly payment.

The other kind of refinancing is called "cash out". Essentially, you borrow against the equity you've invested in your home by "cashing out" money from your first mortgage. While you'll extend the length of time you have left making payments, the amount per payment will remain the same (or even become slightly lower). There is any number of reasons to consider pursuing this option. In the case of an emergency, you may need to quickly access a large sum of money. Perhaps you've lost your job, and want to be assured that you have a stash to look to in case things get worse. Either way, "cash out" refinancing is an option for generating a large sum of money quickly.

Whichever road you take, with the economy and interest rates in their current position, refinancing deserves at least some attention. Even if your current financial situation is relatively solid, you could end up saving money by refinancing at a low interest rate. Speak to a professional today to determine whether you can benefit from this course of action.
About the Author
With the current financial climate you may be thinking about refinancing. Home refinancing isn't something you should consider without doing research. There are certainly scam artists in the industry. Get research here: http://www.refinancingright.com
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