When is a refinance mortgage a good idea is the issue I want to address here.
The principle behind this type of mortgage is that you bought your home a while ago and the value of the property has increased. The amount of that rise is really only a paper increase as you would have to pay the same to move to a similar house. So people think that it is a good plan to use the amount of the increase for other areas of their life.
Of course, I would really recommend that you never do it because all you are doing is to load up more debt on yourself and your family instead of keeping the appreciating asset. It is much better to wait until you can afford what you want. You will be much better off in the long term.
However I want to address four areas where refinancing mortgages could be acceptable.
1. To improve your home. Of the four choices I believe that this is the one which will give you the best benefit in the long run. It is what a refinance home mortgage was originally invented for after all.
When you remodel your kitchen or build an extra bedroom as an extension or add a conservatory, you would normally expect that the value of your real estate would increase.
2. To release the equity on your home. This one works differently for older people than the younger generation.
The young ones may use this to raise some capital to invest into a business or in place of getting a normal student loan to help further their own education or send their kids through college.
Older people often arrive at a situation where they only have a very small mortgage left or that it has been all paid off. In this situation they will refinance in order to enjoy the later years of their lives. This may be to go on dream vacations or just have a great social life. It could also be used to provide care if they were ill.
3. To reduce monthly payments. Now I have your attention don’t I? I am sure that we would all like to pay less money each month to the financial institution that provided us with our mortgage.
In today’s world where expenses keep going up a bit of extra cash each month will come in very useful. I bet you can find ways to spend it or you should use it to start a savings plan for your future if you do this.
I would like to give some warning here though. Things are not always as they seem. Make sure that you read the small print as banks and the like will often offer a fantastically cheap rate of interest for the first year or something and that will attract you to them.
At the end of that discount period the rate will escalate and could be higher than the one you are paying now.
4. Consolidating your debts. This is another reason that seems attractive on the face of it. You have credit card debts of $20,000 and you have $30,000 equity in your home. It makes sense to use some of that equity to pay off those debts doesn’t it?
OK, there are four acceptable reasons for taking a refinance mortgage.
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I completely agree with your suggestion "… all you are doing is to load up more debt on yourself and your family instead of keeping the appreciating asset"
Save your money and reach your goals without putting your home at risk.