At some point in their lives most homeowners will go through the process of refinancing their home. They do this for a variety of reasons. Before approaching a lender about a home refinance loan it is important that the homeowner determines if it is the right decision to refinance their home. A refinance can provide relief to troubled homeowners (especially those who took out ARMs several years ago), but it is not the answer for everyone. Below are several good reasons to refinance.
1. Refinancing is often a good option for those facing foreclosure. Many people have found themselves unable to make their monthly mortgage payments, and now find themselves behind on their mortgage. Many lenders are open to refinancing for those who are currently in distress. It is always a good idea to ask. By refinancing the homeowner can extend the length of their loan and reduce the size of their monthly payments. A refinance in this situation normally requires that the home has at least some equity.
2. If the homeowner currently has an ARM whose rate is set to increase soon, it is a good idea to consider refinancing. When the mortgage rate increases it often becomes impossible to make timely payments. A responsible homeowner realizes this and should take steps to avoid the rate increase by refinancing to a fixed rate mortgage.
3. The current market trends might mean that a homeowner can save money by refinancing. A homeowner does not have to be behind or in danger of not being able to make their payments for a refinance to be a good idea. The conditions might be right where a home refinance loan can save them a substantial amount of money on their monthly payments. The homeowner should consult with their lender to see if this is the case.
4. People who are facing unexpected expenses may choose to refinance their home in order to cash out their equity. If a homeowner has a substantial amount of equity in their home they are within their rights to cash out that equity by refinancing. They can then use this money to pay bills, remodel and add value to their home, or consolidate their debt by paying off high interest credit cards.
One should not use the equity in their home to purchase extravagant luxuries. A European vacation is not a good reason for a home refinance loan. However, refinancing a home can be the solution to many problems. A homeowner should always discuss their situation with their lender before committing to refinancing their home. The owner should be completely honest about their current situation if they are facing financial difficulties. The lender does not want to enter the real estate market, but they also do not appreciate surprises. If the homeowner is honest and upfront most lenders are more than willing to help.