Overview
A home mortgage is the largest single investment that most people make during their lifetime. Using the equity that develops after regular mortgage payments and appreciation of the value on your home is an excellent way to access cash without taking out a high interest rate loan on a credit card or finance company. This revised mortgage loan is known as a home mortgage refinance. Structured correctly, the loan can provide cash for paying debts, making purchases, remodeling your home or almost any other large project you deem necessary. Depending upon the original interest rate you paid and the amount of equity you have built up over the years, you can even refinance and pay less money each month in repayment.
Paying cash for purchases
If you have large amounts of cash available and some significant purchases that are coming due, you can make use of a home mortgage refinance in order to cover the cost of the purchase so that you are not forced to charge an item to a credit card or access other high interest rate loans. You may have a medical bill that needs to be paid. You may want to purchase a swimming pool for your back yard or a grand piano. While not every purchase is a wise use of home equity money, you can make significant savings over the cost of credit card debt by using an equity loan.
Paying cash for debt reduction
When your debts get out of hand, particularly if they are high interest rate credit card debts, sometimes a home mortgage refinance is a good solution. By trading the equity in your home, you pay off the debts that are costing you high interest amounts so that your only debt is your home mortgage with an interest rate that is generally much lower than credit card interest rates. Having a single payment is usually less stressful than multiple payments and is easier to keep track of.
Paying cash for investments
Occasionally homeowners decide to use the equity in their home to pay for other investment vehicles that have a solid rate of return. This is a more risky approach to investment in some cases, but may pay off quite well. An example would be if there is an opportunity to purchase a fixer-upper property or other low cost real estate that could provide additional household income through rental or reselling. Using a home mortgage refinance is a generally straightforward way to access cash at good interest rates.
Paying cash for financial stability
A home mortgage refinance can be a useful way to increase your level of financial stability. With only one outstanding debt--your mortgage--you can easily prepare a budget that stays within the available income level of your household. The amount generally doesn't fluctuate and the due date is always the same, allowing for better planning on your part. This type of attention to income and outgo improves your credit history which makes your options in the event of a future emergency more available.
