Is Refinancing Your Mortgage Right For You?

Refinancing your home mortgage makes sense in several situations. When interest rates are at a low point you can secure a lower monthly payment as well as the total amount paid over the life of the loan. Applying for a home equity line of credit can also be an option for home improvements or other purchases. These are all well and good but be wary of using mortgage refinancing as a way to control existing debts.

Refinancing your mortgage is a huge step and requires you to go through most of the same process you navigated to get your original mortgage. Be sure to have your past income tax filings, current pay statements, and any other pertinent financial documents prior to attempting to refinance. This will make filling out the required paperwork easier. You may also be required to pay additional fees for the filing of applications.

Choosing to refinance for the wrong reason can be a very bad decision. One purpose many people use for refinancing, to pay off existing credit cards and other debts, is a rather poor one. There are many better and easier ways to reduce those debts than to refinance the mortgage on your home.

If you have a satisfactory credit rating and a bit of equity in your home obtaining a second mortgage or equity line of credit makes much more sense. It may cost slightly more than a refinance but it will take a lot less effort and provide increased security in case of economic downturn. Using a second mortgage or equity loan also will help you to gain financial freedom and to break free of your need to borrow.

You also will want to take a look at adjusting your budget if possible to allocate more funds to reducing your debts rather than borrowing more. Taking on any additional debts should be a last resort not your primary solution.

Consulting with a financial advisor or debt counselor is highly recommended to determine if a mortgage refinance would benefit you, if you would benefit from a home equity line of credit, or if there may be better options for your situation. A combination of debt negotiations with creditors, lowering monthly payments, budgeting and reducing interest rates will probably be your best bet. Be wary of risking your home to fix a short term debt problem as it could turn your debt woes into a long term problem.

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