When and Why to Refinance Your Loans

If you have a number of outstanding debts, you may want to consider refinancing your mortgage and consolidating your other debts under the refinance. This can save you a lot of money in interest, and you’ll get to deduct the interest on your refinance from your income taxes.

Many homeowners in the United States refinance every four years, and if you have an adjustable rate mortgage, you may want to do so as well as soon as the interest rates begin to rise. When you refinance to a fixed-rate loan, you will lock in your interest rate so you won’t have to worry about increasing interest raising your monthly payments.

Another great reason to refinance is if your credit rating has improved since you first purchased your home. That means you could be eligible for a lower interest rate, which would result in a lower monthly payment.

Besides debt consolidation, you can also refinance to get some equity out of your house in order to make home improvements, go on a really nice vacation, or make a big purchase you could not otherwise afford to make. One thing to keep in mind, though, is that you will have to pay closing costs on the refinance, so make sure you take those into account before you make your decision to refinance.

The longer you stay in your home, the more benefit you will receive from refinancing. Of course, if you use your refinance to pay off other debts, make sure you don’t get yourself into the same mess again. When you consolidate your debt, the idea is to get it all paid off and then to live debt-free. You can’t do that if you continue rack up credit card debts.

And consolidating your debts yourself is an advantage because all of your creditors will be paid off at once, leaving you with just the one monthly payment to make to just one creditor. Again, you also have the advantage of deducting the interest from your income taxes as well.

Debt consolidation through refinancing is also better for your credit report than other methods, particularly bankruptcy. All of your creditors will reflect bills paid in full in a timely manner, which will help to boost your credit score. If you file for bankruptcy, that fact will remain on your credit report for ten years, and regardless of how good you are at paying your bills during that time, the bankruptcy will continue to haunt you when you apply for other credit.

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