Refinancing a mortgage is a common way for people to get extra cash. If you do this, you might get a lower interest rate and have more money in your own pocket. But there are some things you should know before you think about this.
Things to think about when you want to refinance a mortgage
First, you should know that most of the payments you've made on your first mortgage have been for interest. Like most loans, mortgages have a lot of interest due up front. At first, 90% or more of your payments will go to interest and not to paying off the loan (the actual amount owed). So, if you've been paying your mortgage for a few years, you've already paid off a lot of the interest you'll have to pay over the life of the loan. This means that if you do something like refinance, you'll get a lower rate, but when it comes to paying interest again, you'll be right back where you started.
A home equity line of credit is another way that you can get money. This is a credit line that the lender sets up for you based on how much equity you have in your home. The credit line is higher the more equity you have in your home. This is a very useful type of loan because you only have to pay interest on the money you use from the credit line. So, technically, it is not a loan, but rather money that can be loaned to you at any time. Most home equity lines of credit have good interest rates, which is something you should think about before you try to refinance your current mortgage.
While refinancing a mortgage can seem like a good option due to the lower interest rates, people simply do not realize that the interest paid just starts over. You are back where you started. So refinancing should be the last thing you try. Instead, if you need money, look for other ways to get it, like a home equity line of credit. Considering all of your options can be very helpful and save you money.
