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Refinancing Your Home

Refinancing Your Home

There are three main reasons that may motivate you to refinance your existing mortgage. One is to save money because interest rates have dropped below the rate that you currently have on your mortgage loan. Another reason is to raise capital, borrowing additional money from the equity in your home during the refinancing process. A third reason to refinance is to get into another type of loan, for example when a balloon mortgage comes due.

Declining Interest Rates

Anyone who has ever obtained a mortgage loan will probably agree that one of the most nerve-wracking experiences in their life was watching mortgage interest rates ebb and flow as they gambled on when to lock in a rate on their loan.

Interest rates have historically been very volatile. At times, the mortgage industry has been quite competitive and homeowners have been able to obtain competitively low rates and costs. At other times, credit has been very tight and mortgages have been hard to obtain at any rate.

Raising Capital

You may be able to borrow money as part of the refinancing process, provided you have enough equity in your home; this process operates much like a home-equity loan. This can make good financial sense, because under most circumstances, mortgage interest is tax-deductible. The best part is that, in times of declining mortgage rates, you may be able to keep your monthly mortgage payment the same as before you refinanced, even though you have borrowed some cash.

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