Consumer Refinancing
Homeowners enjoy many refinancing benefits. When you refinance your home mortgage, you get the flexibility to cash out some of the equity in your home and set a new monthly mortgage payment. Even as you explore consumer refinancing options, be careful not to agree to a new mortgage payment that stretches the limits of your present budget.
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Lower Interest Rate
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There are at least two big reasons why consumers refinance to get a lower interest rate. First, after several years of paying a mortgage, you might have a much higher credit score, and consumer refinancing offers a new lower payment. A lower interest rate saves you thousands in interest over the new loan repayment period compared to the mortgage interest you would pay on your old home mortgage for its remaining years. Second, the interest rates on the market now may fall below the interest rate you purchased for your present mortgage. Save with lower interest rates on first and second mortgages.
Extend Repayment Period
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If you're young enough or willing to pay 15, 20 or 30 more years on a mortgage, you may want refinancing to extend the repayment period. Lower your monthly payment with a slightly lower interest rate. One reason might be you want to pay a lump sum and reduce the principal at the new closing. Extending repayment to 30 years again, however, equals a risk because you never know how many years you have left to work before retiring or drawing disability benefits.
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Debt Settlement
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Refinancing also helps consumers clean up their credit report and withdraw a sizable amount of money in home equity. A home's equity represents the difference between its value and how much is owed to the lender. Consumers with outstanding debts, such as credit cards, student loans, medical bills and property liens, can negotiate with creditors. Save money by repaying these debts in lump sums. You might choose this option because you want to repay debts with higher interest rates than a home mortgage and because creditors will accept less than the total debt owed because you promise a lump sum.
Appraisal
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Consumer refinancing also requires gathering new documentation for your lender. For example, a lender may request a new appraisal for a home or property. If an appraisal reveals a property has increased in value, you may be able to borrow more because your property has more available equity. Remember that the higher principal, or total loan amount, that you borrow, the higher your payments will be during your repayment period.
Tax Breaks
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Consumers should also speak to their tax adviser about any tax benefits they might gain by refinancing a mortgage. For example, you might be able to deduct mortgage interest. You might need to weigh the amount of interest you can write off on one tax return against penalties you might incur. For example, settlements with creditors for less than you owe may have to be reported as taxable income. A tax adviser can help you look at the whole picture and make the best choice.
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