Deciding to refinance your home is not something that you should do without putting a lot of thought into it. It may seem like the “magic” option for your money problems, but in some cases it may cause more harm than good. Learning more about the refinance process and why you should think about refinancing can help you to determine if refinancing your loan is best for your and your future financial situation. What do you need to know about home refinance options?
The Many Types of Home Refinancing
You can choose to replace your existing loan with an entirely new first mortgage loan or you can choose to get a second mortgage loan on your existing loan. You first need to determine why you are looking into your refinance options to determine which one will be best for you and your needs.
-First Mortgage Loan
If your existing loan has a high interest rate or if you have an adjustable rate mortgage (ARM), you may want to replace your loan with a new loan to help lower your monthly payments and the amount that you will pay to the mortgage company. This is a good option if you are planning to stay in your home for longer than a few years, but if you are moving in a year or two, it may be cheaper in the long run to just stick with your existing mortgage loan. Make sure that you carefully read the loan terms and choose your loan to ensure that you are making the right long term financial decision for you and your family.
-Second Mortgage Loan
You can get a second mortgage based on the amount of equity that you have in your home to allow you to make improvements to your home or pay off high interest loans from credit card companies. This has several benefits, including the fact that you can take the interest from your loan off of your income taxes. A second mortgage loan is another loan in addition to your first mortgage, so you want to be sure that you can afford another additional payment, so that you can keep your financial situation secure.
This type of loan can be called several different things, including a home equity loan or a home equity line of credit. This type of loan normally has a fixed interest rate, which will keep the payments at the same amount each month for the duration of the loan. Carefully consider the reason why you are getting the loan to ensure that it is worth using your equity.
By choosing your home refinance loan carefully, you will be able to find the right option for you and your future financial situation. By weighing the pros and cons of each type of loan, you can better ascertain which one will be best for your loan goals and future financial goals. Whether you choose a first or second mortgage loan, you want to be sure that you make your decision carefully.
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