Refinancing has become a big business in the United States and other developed countries around the world.The number of people that refinance has risen dramatically in the past 2 decades which can be attributed to a number of things.
Previous generations tended to think about safety when thinking about their money and safety meant having no debt.
When a mortgage was obtained at a young age, people worked hard to get the mortgage paid off.They lived without luxury items and cut back where possible all in a quest to one day have that mortgage paid off.
Once it was paid off, never would they dream of going back into debt by refinancing.
Times have changed though.Life has become very expensive, house prices have outpaced salaries and it’s no longer as feasible to get a house paid off and leave it that way forever.
Refinancing has become common even among those who are financially responsible as a means of managing money in a responsible way.
Why Do People Refinance?
Below are the 3 most common reasons that people refinance.
#1 - Too Much Credit Card Debt
A common reason for re-mortgaging today is to refinance credit card debt.Suppose that you owe $10,000 on credit cards at 18% interest.That’s $1800 per year in interest alone or $150 per month.
If you were to refinance, you could roll that debt into your mortgage, only increase your monthly payment by a very small amount and now have a much lower interest rate.This helps to free up cash flow, especially in budgets that are very tight.
#2 - Education Financing
If you haven’t checked it out lately, have a look at the price of tuition at your local College or better yet, a University.Tuition is well over $7,000 per year and many people turn to the equity in their home to pay for their children’s college tuition.
While it isn’t ideal, if you have the equity to do it, it’s likely the least expensive way to borrow money for education purposes.
#3 - Renovations or Repairs
Home renovations or emergency repairs tend to be a common reason to refinance.Roofing, furnaces and foundation repairs can all be very expensive repairs and many turns to their home equity to cover the cost.
Even when it’s not an emergency, many choose to use their home equity for a much-needed facelift to their bathrooms or kitchens.
Is Refinancing Right for You?
Refinancing scenarios are each different, but there’s one thing to watch out for.If you find that you have had to refinance more than once to cover excessive credit card debt, you may want to take a closer look at your spending habits.
While life can throw a curve-ball once in a while and refinancing is necessary, if it’s becoming a habit to make up for your overspending, it’s time to see it for what it is.
Refinancing can be a great way to get the money that you need for various reasons.Make sure to ask as many questions as you can to your lender so you know exactly what you’re getting into, what your obligations are and if there are any restrictions or fine print that you should be aware of