When is refinancing your home a good option?

Refinancing your home may seem to be the ideal way of freeing up capital. If you need money now, the sensible solution seems to be that you should take advantage of the equity in your property. However, taking out a second mortgage isn't always the great move it might seem to be. Read our tips below to help you make your decision.

The two main factors to influence your refinancing decision should be your personal circumstances and the general economic climate. Both these factors should be considered together when making your decision on taking out a second loan.

The general economic factors that affect refinancing your home

The main economic factors to consider are house prices and interest rates. The higher house prices rise, the higher the perceived value of your home. This means that you will be able to borrow larger amounts by refinancing your home. However, you also need to consider whether or not house prices will continue to rise. You don't have a crystal ball to predict the future, but you should listen to economic forecasts before making an educated guess. Rapid growth in house prices is likely to be less sustainable than slow, steady growth, so exercise caution.

The crucial thing to remember is that the "money" in your house isn't real money. The only time you'll actually see that money is if and when you sell the place. Taking out a loan against the hypothetical price of your house could land you in trouble if you overstretch yourself financially and then prices fall.

Interest rates are related to house prices, since interest rates are one of the tools used by the Federal Reserve to keep the economy on an even keel. If house prices rise too high, the Chairman of the Federal Reserve may raise interest rates to put the brakes on soaring prices as well as consumer borrowing. What this means for you is that refinancing your home becomes more difficult, as mortgage lenders absorb the impact of higher Federal Reserve interest rates. If you have already taken out a second mortgage at the mortgage provider's SVR (standard variable rate), you will be paying more interest every month.

Rising federal interest rates also cause fixed-rate deals to be offered at higher rates. If federal interest rates rise while you're shopping around for a fixed-rate deal, you will probably find that bargain offers on fixed-rate deals disappear rapidly, leaving you with a less favorable choice of rates. The only time a rise in interest rates should make you feel smug is if you have already secured a good fixed-rate deal, but even then you should watch out for the expiry of your deal.

The personal money issues that affect refinancing your home

If you're considering refinancing, you need to ask if you can afford it - that is, if you will be able to repay the money you're borrowing. You also need to think about your reasons for taking out a second mortgage.

For many people, taking out a second mortgage is a way out of credit card debt. This can be a good solution if the interest rates on your second mortgage are lower than the interest rates on your credit card debts. However, you need to think very carefully and see a financial advisor. Don't take out a second mortgage without a detailed financial plan in place to ensure that you never get in credit card debt again. Many people relax when the worry of credit card debt is removed, only to begin spending again as much as before. A second mortgage isn't a magic solution to your debt problems - it's just a different form of debt, and you'll still have to pay it off eventually.

It's a completely different situation if you've already paid off your first mortgage. Refinancing is a popular way to free up some cash for a better lifestyle, and it usually doesn't financially overstretch you in the way that two mortgages would. However, some deals are poor value. See our page on reverse mortgages for more information about this option.

 

 

 

 

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Mortgage Refinancing

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Re-evaluating your mortgage
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>Refinancing calculator
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> Refinancing your home
> Home refinancing
> Refinance second mortgage
> Second mortgage
> Bad credit refinance
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