Can Refinancing Help my Equity?

Refinancing can help you in many ways as long as it is done for the right reason. If you are considering refinancing, you will want to know what it can do for you and how. One way that refinancing can help you is to help you grow your equity, although it cannot do it without some help from you.

What is equity?
The equity in your home is the value of your home (not the sales price, but the actual value) less the money that is owed on the property. This value can be cashed in on in the form on home equity loans, which offer lower rates than credit cards or personal loans, and will allow you to finance things like a wedding, a new car, or a much needed vacation if you so desire.

How can refinancing help with my home’s value, then?
Refinancing will not directly affect your home’s value or your equity, however if you make a commitment to raising your equity, then you can easily use the refinancing as a way to do it. The first step is to refinance with a better loan. This means one with favorable terms and a lower interest rate. Once you have a loan that offers this, make sure that there is also no penalty for paying more than the minimum amount due as presented on your statements each month.

The next step in this little scheme of yours is going to be to continue to pay what you have been paying. Yes, we know, you were hoping for a little extra cash once you refinanced, right? But committing to pay that extra cash each month for even as little as a year can really take some time off of your loan, boosting your equity in the process and allowing you to make the most of those payments. And the best news is that while you are not paying any less, you are making progress on your loan and are not paying any more, either. This is a great step toward making your financial future happy and secure for you and your family.

Are there any drawbacks?
If you are refinancing because you are sinking in debt, then there is a big drawback that reduces the protection against your personal assets should you be foreclosed upon. In the case of an original mortgage, your home is forfeit but your personal property like your savings account and your car are protected from seizure. After you refinance, however, this important protection goes away, and it is possible that you will be left with a lot more debt than you can handle, and may have to add a bankruptcy to your foreclosure. This is never a good thing.

You also have to be careful when refinancing that you have enough cash on hand to cover the fees from the process itself as well as the penalties that the other mortgage company might wish to impose upon you as you end your deal with them prematurely. This can add up to a lot of extra cash, so you have to be careful that it is worth it to you in the long run to refinance your home.