|
Dreaming about entering retirement debt-free? With mortgage interest rates at all time lows, refinancing opportunities look attractive and may help you towards your goal. As rates continue to decline, people holding older mortgages at higher contractual rates have increasing opportunities for financial gains through mortgage refinancing.
Why refinance?
The most obvious reason for refinancing an existing real estate mortgage is to obtain a lower interest rate on the outstanding mortgage balance. The most immediate benefits of refinancing are:
- reducing the interest expense required to carry the mortgage.
- an immediate reduction in the monthly payments.
Another promising benefit of refinancing is the potential to consolidate high-interest consumer debt. In fact, survey results reported in the August 1990 Federal Reserve Bulletin stated that nearly 60 percent of those who refinanced also borrowed additional funds. This often results in interest expense savings and favorable tax treatment of home mortgage interest expense, which may make refinancing a very attractive decision.
Finally, some individuals refinance to change the due date on that final payment. Some are attracted to the idea of having a debt-free home sooner rather than later. Others who find themselves operating under a very tight budget may extend their mortgage term in order to reduce the required monthly mortgage payments.
How does it work?
The simplest form of refinancing is the replacement of a fixed-rate mortgage with another fixed-rate mortgage that has a lower interest rate. Adjustable-rate mortgages increase the potential refinancing options available to existing mortgage holders. You may change a fixed-rate mortgage to an adjustable-rate loan, or change an adjustable-rate mortgage to a fixed-rate one, or replace an adjustable-rate mortgage with another adjustable-rate mortgage. There are a lot of options to choose from.
Are there potential pitfalls? 
|
