FAQ About the Advantages of Refinancing

Refinancing a mortgage is an ideal way for homeowners to reduce their total debt, and allows the consumer to obtain a second loan to pay off the first. Thought it may seem counter-intuitive, there are a number of advantages to refinancing in this manner.

Q: What are the benefits of shorter term loans?

A: After obtaining your first loan, if the finances are available to make a higher payment down the road, refinancing into a shorter loan allows you to save money otherwise applied to interest. With reduced overall interest, paying a mortgage this way also allows you to build equity in your home at a faster pace.

Q: What are the benefits of refinancing for a cash payout?

A: Refinancing a home loan is a viable option when the monies received are invested back into the home to increase its value. When a mortgage is refinanced this way, the money obtained is practical only for remodeling or building onto the home; paying down credit card debt or buying a new vehicle is not a recommended option since these assets quickly depreciate in value.

Q: What are the benefits of refinancing into a fixed rate mortgage?

A: In most situations, refinancing out of an adjustable rate and into a fixed rate mortgage is a recommended option when living in the property for a significant amount of time. Adjustable rate mortgages offer low payments initially but these payments may drastically increase over the long term. Fixed rate mortgages allow for consistent payments and a schedule where payments made against the loan slowly reduce over time.