Loan Refinancing: Debt-Freedom or Debt-Slavery?
Kate Ross
January 09, 2007
Many loan agents promote home loan refinancing as the path to debt freedom. Refinancing can be either a way to reduce your debt, a way to reduce the amount of your monthly payments or a cheap source of finance. However, depending on your home loan terms and the new loan conditions, refinancing can contribute to reducing or augmenting your debt.
You need to be extremely careful when considering refinancing since it痴 a very complex financial operation and there are many variables involved that if not considered carefully, they can affect the results turning the financial transaction into an extremely onerous decision that may increase your debt against your will.
Daily Finance Eased
Refinancing your home loan can alleviate your daily finances. By refinancing your home mortgage with a longer repayment program and / or a lower interest rate, you can lower your monthly payments and thus, the amount of money you destine towards debt payments will be considerably reduced.
However, this doesn稚 always come at no-cost. If you get a lower rate and a longer repayment program, you may be saving money but you値l have to be indebted for a longer period of time. If you get a higher rate and a longer repayment program, you may get lower or higher monthly payments depending on the intensity of the increments and you may also get some ease for your finances but you値l also be attached to the loan for a longer period of time. Only an equal loan term and a lower interest rate can save you thousands and not oblige you to a loan for longer periods.
Long Term Commitment to Mortgage Payments
The opposite of the above is also true. If you want to hasten the date where you値l finally be debt free, you値l have to compromise your income to debt ratio. Shortening repayment programs will raise your monthly payments as a higher rate would do. This can be compensated by a reduction on the interest rate but this cannot always be achieved.
By refinancing for shorter repayment programs you will be affecting your income since you値l have to destine higher amounts towards debt payments. So, when it comes to refinancing, you値l need to ponder all and reach equilibrium between all these variables so you don稚 extend your debt-slavery too long and you don稚 affect your income to debt ratio either.
The Right Path Towards Debt-Freedom
What you need to do is reduce your overall debt and since home loans are the cheapest sources of finance, it is wise to extend the repayment programs (even if the rate goes up) because by lowering the installments you値l be able to use the surplus to repay other debt. Of course, this requires discipline on your behalf since a chaotic credit behavior will worsen your situation.
If you can get approved for a cash-out refinance home loan, you値l be able to use the extra money to cancel outstanding and more expensive debt which will contribute to achieving debt freedom sooner. Remember, exchanging your expensive debt for cheaper financial sources is the smartest and most intelligent thing to do.
You need to be extremely careful when considering refinancing since it痴 a very complex financial operation and there are many variables involved that if not considered carefully, they can affect the results turning the financial transaction into an extremely onerous decision that may increase your debt against your will.
Daily Finance Eased
Refinancing your home loan can alleviate your daily finances. By refinancing your home mortgage with a longer repayment program and / or a lower interest rate, you can lower your monthly payments and thus, the amount of money you destine towards debt payments will be considerably reduced.
However, this doesn稚 always come at no-cost. If you get a lower rate and a longer repayment program, you may be saving money but you値l have to be indebted for a longer period of time. If you get a higher rate and a longer repayment program, you may get lower or higher monthly payments depending on the intensity of the increments and you may also get some ease for your finances but you値l also be attached to the loan for a longer period of time. Only an equal loan term and a lower interest rate can save you thousands and not oblige you to a loan for longer periods.
Long Term Commitment to Mortgage Payments
The opposite of the above is also true. If you want to hasten the date where you値l finally be debt free, you値l have to compromise your income to debt ratio. Shortening repayment programs will raise your monthly payments as a higher rate would do. This can be compensated by a reduction on the interest rate but this cannot always be achieved.
By refinancing for shorter repayment programs you will be affecting your income since you値l have to destine higher amounts towards debt payments. So, when it comes to refinancing, you値l need to ponder all and reach equilibrium between all these variables so you don稚 extend your debt-slavery too long and you don稚 affect your income to debt ratio either.
The Right Path Towards Debt-Freedom
What you need to do is reduce your overall debt and since home loans are the cheapest sources of finance, it is wise to extend the repayment programs (even if the rate goes up) because by lowering the installments you値l be able to use the surplus to repay other debt. Of course, this requires discipline on your behalf since a chaotic credit behavior will worsen your situation.
If you can get approved for a cash-out refinance home loan, you値l be able to use the extra money to cancel outstanding and more expensive debt which will contribute to achieving debt freedom sooner. Remember, exchanging your expensive debt for cheaper financial sources is the smartest and most intelligent thing to do.
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