Why a Home Refinance?
By: Gust Lenglet

            Home refinance has been given a bad name in recent years by individuals who have refinanced their property only to sink further into debt. It is important that homeowners realize that this is the exception rather than the rule. When done properly, refinancing a mortgage can be a tremendous advantage. They key is to know when to make a home refinance and when to allow the crush to pass you by.

            The elasticity of the housing market makes home refinance a tempting possibility for those who bought their property when interest rates were high, only to watch the market fall a few short years later. In these cases a refinance can be their best available option, since it will allow them to lock in their loan and pay less for the privilege of doing so. This will also allow a homeowner access to a ready supply of cash, since they will be able to cash in on their home’s equity much earlier than they had originally planned.

            For the individual suddenly handed thousands of dollars worth of medical or tuition bills, or for the homeowner looking to make repairs and renovations, it can be more convenient (and less expensive) to take out a home refinance than to obtain a personal loan or use a credit card to handle these expenses. It can also allow a homeowner who has already paid forty to sixty percent of their original mortgage the opportunity to drop their monthly expenses by stretching their payments out over another ten to twenty years, something that is very appealing to individuals who find themselves living on a lower income due to the loss of a job or a spouse many years after the original purchase.

            Before you run out the door to get your own home refinance, however, take the time to find out whether or not it makes sense. If you have been paying on your property for less than five years it is doubtful that your home equity will be sufficient to justify refinancing the loan. You’re simply not going to save enough money. The same is true if your credit is less than stellar. While you will probably be able to find a lender , the interest rates you will pay are unlikely to justify the loan.

            Another point that many homeowners fail to factor in is the added expense of private mortgage insurance, referred to hereafter as PMI. The purpose of PMI is to protect the lender in case the borrower decides to default on their loan and is mandatory for home refinance of 80% or more of the property’s current book value. Although PMI can be a tremendous asset to the homeowner without a 20% down payment, for the homeowner considering a home refinance it can be more of a complication than anything else.

            The bottom line is that there is no right or wrong answer when considering a home refinance. What’s important is that you take the time to evaluate your personal circumstances, speak with a financing professional and be sure before you sign on the dotted line that it’s the right move for you.