Mortgage Refinance Calculator

Author: Devora Witts

By refinancing your home loan you can increase the equity on your home, thus letting you obtain in the future a home equity loan or line of credit or eventually, once the first mortgage is canceled, another mortgage in order to make home improvements, buy another property or for any other purpose you may think of.

Equity Explained

Equity is basically the difference between your property's value and the remaining debt on your mortgage. For example: If your property is worth $100.000 and your home loan debt, though originally $100.000, is now around $60.000 due to the continued payments, then, the equity on your home is $40.000.

The equity on your home let's you obtain cheap finance in large amounts because loans and lines of credit based on equity are secured by the same property as your mortgage. In the above example, the proprietor could easily get approved for a home equity loan or home equity line of credit for $40.000 with an interest rate only 1 or 2 points over his mortgage rate.

Refinancing Can Help You Build Equity

Though refinancing is usually used for reducing the burden that mortgage installments sometimes imply or for consolidating debt with a cash out refinance loan, with the proper refinance mortgage loan you can easily start increasing your home equity at a considerably faster rate.

Equity builds either when the property's value increases for whatever reason or when the mortgage debt's principal is reduced. The current rate at which the mortgage's principal is reduced depends on the interest rate and the loan length or to make matters easier, the equity building pace depends on the composition of the mortgage installments.

If the mortgage installments have a higher proportion of interests and a lower proportion of principal, each time you pay your mortgage installments you are only reducing the debt's principal slightly and thus, your home equity will increase just a bit.

However, if you could refinance your home loan in such a way that a higher amount would go to reducing your debt's principal, then, your equity would build much faster and you could increase your ability to get finance at lower rates and with higher amounts in a matter of months.

Refinancing To A Shorter Term

It is obviously best if you can get a lower interest rate when refinancing, however, the key to reducing the principal and building equity faster is to shorten the loan term. You'll of course have to pay higher monthly installments but those installments will have a considerably higher proportion of money that will go to cancelling your mortgage debt's principal and so, your goal of hastening the equity building rate will be accomplished.

Moreover, since refinancing to a shorter term will undoubtedly reduce the interest rate you pay for your mortgage, by refinancing for a shorter term you will not only build equity faster but you will also save thousands of dollars on interests over the whole life of the loan.

About Author

Devora Witts is a certified loan consultant with several years of experience in the credit area who instructs people regarding credit recovery and approval for personal loans, home loans, consolidation loans, car loans, student loans, unsecured loans and many other types of loans. If you want to understand Home Equity Loans and Home Improvement Loans thoroughly you can visit her site http://www.badcreditloanservices.com

Refinancing your home loan may sound tempting and a good option to ease your current financial situation. However, even if you get a momentary relief and you can dispose of the surplus on you income for other expenses, you may find yourself in a debt trap in the near future. One from which it may be too complicated to escape.

Many people refinance their home loans in order to reduce their monthly payments and thus, provide some ease to their income. But later, they incur in new debt or market conditions turn their home loans more burdensome and they can not afford the monthly installments. Eventually they default on their home loan or other debt. This has terrible consequences on their credit score and could lead to bankruptcy among other costs.

Variable Rate Vs. Fixed Rate

Usually in order to reduce the amount of the monthly payments, people refinance their fixed rate mortgage loans with a new loan with variable rate. Though variable rate loans have lower interest rates, the rate changes according to market conditions and if the situation worsens, then the monthly installments may become unaffordable.

Thus, when refinancing you should always contemplate the possibility (that a variable rate implies) that your loan installments will vary with time. If you can not cope with those variations you should stick to a fixed interest rate that will keep your monthly installments unchanged through the whole life of the loan.

Higher Interest Rate

Refinancing for a higher interest rate loan in order to get longer repayment programs and thus smaller loan installments, may provide some relief in the short time but you need to consider that it will raise the amount of your overall debt and compromise your ability to get further finance in the future.

A higher debt exposure will limit your possibilities of getting a new loan if you need financial assistance in the future. It is sometimes better to make some sacrifices in order to keep the original repayment program and maintain the amount of the monthly payments in exchange for being able to request a loan if something unexpected happens.

No Further Loan Spreading Possible

After refinancing for a longer term loan and getting a lower monthly payment, you probably will not be able to refinance your home loan again and thus, if you do not do your math carefully or if your financial situation worsens, you will not be able to resort to refinancing to reduce your monthly payments again.

So, if you currently can cope with your monthly payments even if you are a bit tight, it is better to keep your present mortgage the way it is and request a personal loan for other expenses. Refinancing can make a larger portion of your debt more costly just to afford something that you could finance by other means. And, unless you refinance for a lower interest rate or the same interest rate but a longer repayment program, it is better to keep your current mortgage and resort to other sources of finance if possible.

About Author

Melissa Kellett is an expert loan consultant who has worked for twenty years in the financial industry and helps people to repair their credit and get approved for home loans, unsecured personal loans, student loans, consolidation loans, car loans and many other types of loans and financial products. If you want to learn more about Cash Out Refinance Home Loans and Home Equity Loans you can visit her site http://www.speedybadcreditloans.com/