You must be paying off a mortgage loan in order to be able to refinance your home. Refinancing is a process that takes the original loan and replaces it with a new set of loan terms. This would be through another lender, since the current lender will not refinance the current loan. There are a number of benefits to be had by refinancing a home. Follow the steps below to find out what the benefits are.
Get a lower interest rate. One of the main benefits of refinancing your home is aiming for a lower interest rate. When originally buying the home, the interest rate may have been nine percent and you may be able to qualify for five percent. Therefore, by refinancing you can save plenty of money per month by going for the lower interest rate.
Convert equity into cash. If you want to make improvements on your home or invest your equity you can refinance and receive the extra cash. Equity is the amount paid off the loan compared to how much you still owe. If you have been paying for several years then chances are the amount you still owe will be several thousand less than the original amount of the loan. This amount is considered your equity and when you refinance you can take that cash out for anything you choose.
Become stabilized. If you are in an adjustable or sub-prime loan you can refinance into a fixed-rate loan. Having a fixed rate would allow you to know exactly what kind of payment you will need to make each month. This would allow you to adjust your budget as needed.
Shorten the life of the loan. When refinancing you can request to pay fewer years on the loan depending on how much you have left to pay. For example, if you bought the home for $100,000 and you owe $80,000, then you can shorten the mortgage note from 30 years to 15 years. You can also benefit by extending the loan term to 30 years with lower monthly payments.
Consolidate loans. If you have the opportunity to receive a low interest rate on the refinancing of your home, you can request to have your credit cards and car loan consolidated into the same loan. Your property value must be worth the same amount of the loan (with all bills included) in order for the consolidation to work. For instance, if your property is worth $110,000 and your bills add up to higher than that, then you will not be able to consolidate everything. If the accounts come out to lower than the property's value, then it is possible. This is a great benefit from refinancing your home. This will free up all of your credit cards and pay off loans that have a high interest rate.