Why refinancing? What's in it for me?

The United States is in the midst of its worst economic slump since the Great Depression, and all Americans are feeling the financial pressures. Many people became homeowners during the few years prior to the recession while home prices were soaring. Now that the market has cooled, many people owe more on their mortgages than their homes are actually worth. Meanwhile, unemployment is up and the job market is tightening. More and more people are finding themselves living beyond their means.

Mortgage refinancing can bring fast relief for people who need some extra help. By switching to a new loan with a lower interest rate, people can put money back in their pockets or accelerate the rate at which they pay off their homes. The ongoing recession has generally meant bad news for homeowners; mortgage refinancing is the exception.

Benefits of mortgage refinancing now

• All-time low interest rates: Federal interest rates have declined to historically low levels in hopes of spurring growth in the economy. Anyone with a mortgage could save money by taking advantage of these rates, either by agreeing to new fixed-rate or adjustable-rate mortgages. Of course, with interest rates this low, there are obvious benefits for fixed-rate mortgage plans.

• Say “goodbye” to PMI: Private Mortgage Insurance is required for people who take out new loans. Often, your PMI can be dropped upon refinancing your home loan. Homeowners can start saving money immediately by saying goodbye to their PMI.

• Pay off your home faster: Mortgage refinancing is great for people who need to put some money back in their pockets. For people who aren’t having problems with their payments, mortgage refinancing is a golden opportunity to reduce the overall size of their debts. This means faster financial freedom for people who are willing to continue with their existing monthly payments.

• Get cash fast: Need a vacation, or are you trying to pay for some renovations? Cash-out refinancing loans allow you to cash in on the equity of your home. Put that money toward your new mortgage, or use it to take care of whatever other needs you may have.

Risks of refinancing

• Mortgage refinancing is a pretty safe bet. The risks of mortgage refinancing can be avoided with diligence and sound financial planning. Still, it’s good to be aware of the potential cons of restructuring your home loan.

• Temptation to increase spending: The promise of saving money comes the temptation to increase spending – and therein lies an inherent risk of mortgage refinancing. Anyone who is considering mortgage refinancing should speak with a qualified financial advisor before making any new loan agreements. Some people need extra money from mortgage refinancing for reasons beyond their control, but others may need a reminder about the basics of saving and spending money.

• Bad loans result in more debt: Beware of home loan agreements that look too good to be true. If your mortgage payment seems really low, then you’re probably paying more interest than you should be. That means you might end up paying more for your home in the long run. Be careful not to accept a longer, more expensive loan that could end up killing your bank account.

• Don’t put your home at risk: Some people consolidate credit cards or other debts into their refinanced mortgage. The problem here is that now your home can be considered as collateral for not paying off your other debts. Be extremely wary of connecting your home with other debts, especially during times of economic recession, where things can go from bad to worse at a moment’s notice.