The
benefits of refinancing are not always immediately obvious. It seems like a lot of hassle to arrange for refinancing your home. However, the benefits of refinancing can be many, including lowering your monthly payments and consolidating your debts, among other things.
As
Suze Orman points out in "The 9 Steps To Financial Freedom", you can't get ahead if you are paying more than you need to be for something as basic yet costly as your housing.
One of the main benefits of refinancing in most cases is that you can have a lower level of monthly payments for the loans that you already have. When you refinance your home you can often get lower interest rates and therefore lower monthly payments as a result.
Every month you send in a mortgage payment which includes that month's interest and a part of the principal amount of the loan that you took out in the past. With refinancing you can often reduce the monthly payments that for both the interest and principal.
The reason why there are lower principal repayments is because when you refinance your home you will be taking out a second mortgage that will pay off the first mortgage. If the first mortgage was taken out many years ago and you had already paid off a good amount of it you will be able to take out a smaller mortgage because your balance owing will be smaller than the size of the original mortgage.
Debt consolidation is another of the common benefits of refinancing. This benefit will be especially useful for those who have high interest debts such as credit card debts and personal loans. The equity that you have already will be used as collateral to help you get a lower interest loan by converting from unsecured to secured borrowing. Of course, you won’t immediately get lower mortgage payments if you refinance for this purpose, but your other repayments will decrease.
Debt consolidation will be useful in that it will help to make it easier for you to pay off all of your bills. It can be difficult to take care of all of the bills that you have in one month, so with debt consolidation you will be simplifying the payments that you have to make.
If you put the money you save on repayments towards reducing the principal outstanding on your mortgage, you can be financially free much faster.
One of the major benefits of refinancing is that you can use the equity that you already have built up. You can cash out the equity for various purposes, including paying off credit cards, financing your future education needs or improving your home.
A line of credit with equity can be taken out, but the money will not be sent to you all at once. Don’t forget that while this is one of the best benefits of refinancing, you are using your home as collateral. The benefits only accrue if you use the lump sum to reduce higher-interest debts, increase the value of your home, or improve your earning capacity.
If you spend the money you save or the equity you release as cash on consumer spending, you are squandering the
benefits of refinancing your home.
Read Suze Orman's 9 Steps To Financial Freedom.Photos: pnwra 
