Turbo Equity-Building With A Mortgage Refinance
Friday, December 01, 2006
Refinancing to a shorter term can be a great way to give your
equity building efforts a jolt. This is because a shorter term
means that your interest is not stretched out over as many
years, so you pay less of it. Additionally, even though the
payments on the refinance loan may be higher than your original
mortgage payments, more of the money goes to the principal. And
this is how your home builds equity: by paying down the
principal.
What is equity?
Your home builds equity as you pay down the principal, or as
your home increases in value. Basically, equity is the
difference between how much your home is worth and how much
money you owe. For example, if you have a home that is worth
$150,000, to figure out the equity, you subtract how much you
still owe on your mortgage. If you still owe $90,000, the
equity in your home amounts to $60,000.
Boosting your equity
Because so much of your mortgage payments go to interest during
the first half of the term of your home loan, equity builds
slowly, especially in the first 10 years. If you have an
interest-only loan, the equity builds at an even slower rate.
If you want to boost the rate at which your home builds equity,
you can refinance to a loan with a shorter term. A shorter term
means that you will have to make higher payments on the
refinanced loan, but it also means that more of the money is
going to the principal, helping you pay down the loan faster
and building equity at a more rapid rate.
Advantages to refinancing to a shorter term
While the higher payments may be a deterrent to those whose
income has remained steady for years, someone who has received
an increase, and expects that increase to remain in place, can
derive the following benefits from refinancing a mortgage to a
shorter term, such as from a 30-year loan to a loan term of 10,
15, or 20 years:
· Lower interest rate for a shorter term means you pay much
less in interest
· Shorter term means that the principal goes down faster,
quickly building equity
· Less money is paid out in interest on account of fewer years
to spread the loan over
· House is paid off faster, freeing the funds sooner than if
you had a 30-year mortgage
Of course, before refinancing for any reason, you should make
sure that your current mortgage is not subject to prepayment
penalties.
About The Author: Visit http://www.refinancesmarts.com for more
information on how a
http://www.refinancesmarts.com/mortgage_refinance-3_reasons_to_refinance.shtml
can help build equity in your home.
posted by Dennis Cheesman @ 7:41 AM,
