Home loan interest rates fluctuate like any other area of the financial market. When rates are low, consumers who'd borrowed at less attractive times usually want to take advantage of the low rate to save thousands of dollars over the rest of the term on the loan.
Refinancing for large savings on interest is always a smart move. After all, the alternative is to keep paying against a high rate, which raises monthly payments and creates a large increase in the amount the loan costs over many years.
While a favorable rate is a very good reason to refinance one's primary residence, many home owners take advantage of low rates for other reasons that are not necessarily conducive to growing one's net worth, or aiding in retirement planning.
Using Home Equity to Make Home Improvements
When a young family purchases a residence, they often have ideas of certain improvements they would love to make to turn the house into a home.
However, obstacles find their way onto the path toward such improvements. Costly obstacles, such as children needing braces and a family member caught in a company's downsizing, can hit home fast. Less costly matters, such as date nights and daily Starbucks lattes, also cut into a family's cash flow.
Over time, the family grows and moves on to better things. While the children are in college, it becomes quite obvious that after several years in the same home and paying the mortgage diligently, not only has equity been built, but the home may have appreciated quite handsomely.
To complement the rising value, loan rates have dropped to an all time low. Some couples feel that waiting to pay off the balance would just take too long, so they refinance. The result may be the same monthly payment as before, but with a suddenly large amount of money in the possession of the home owners.
Now, the couple has thousands of dollars to hire contractors to repaint all the rooms in everyone's favorite colors, put new tile in the kitchen, new energy-saving doors and windows on the outside, and maybe replace the carpet after years of wear and tear. With money left over, this home would be greatly served with plush, new furniture, which was all acquired for a rate much lower than any retail store would offer.
This all fits into the ideal many average Americans have of not "keeping up with the Joneses," but being them; all for the price of a lifetime of low interest payments.
Funding a Large Lifestyle With Hard Earned Home Equity
In becoming the Joneses, some families may simply become lost in all the things they can pay cash for with the money they've borrowed. Years of driving used vehicles may come to an abrupt end with the purchase of brand new vehicles.
In the past, travel may have been carefully planned and on a budget. This year, that family may decide to purchase a motor home and go wherever they please for two weeks. But why drive when one can purchase first class air travel?
While away in new and exciting cities, such as New York City, Hong Kong, or London, thousands can be spent like they have never been spent before, because now there are thousands in the bank like there never have been before, and it's time to really live it up.
New cars, travel, and shopping are not bad things, but the cash used to purchase such luxury is actually credit that had been taken out on one's home, not excess disposable income hidden away over many years of careful planning.
Money borrowed against one's home should not be used at one's leisure, but with diligence, even when used to help a good cause.
Using Borrowed Money to Give to Charity
Giving is a great habit to develop over one's lifetime. Not only does it feel good, but good can be done with the money donated between jobs in the charitable organization, goods and services provided to those in need, such as blood from the Red Cross and shelter for children in times of crisis. But giving money that is accruing interest against it should be done with much care.
For many generous people, it is not an uncommon dream to make contributions (even if only once) that stand out among others. Obtaining a large sum of money from the equity in one's home can cause some to feel that they have been blessed, and that such blessings should be passed on.
Before writing a large check to one or several worthy organizations, it should be noted that the blessings that brought the money involved overpayment over many years, whittling down principal on a large debt and maintaining a home against a dollar that shrank as a result of several factors in the economy.
So, while giving generous amounts of money to charity is a very good thing, the results could be financially devastating in the event of possible financial hardships, such as layoffs or medical emergencies.
Taking money out of one's home through a refinance can have positive results on one's life and lifestyle, but only when it is done with care and diligence. And care and diligence does not often result in the purchase of luxury automobiles, a hot tub, and one's name on a placard for his recent generosity. At least, not when it's done with borrowed funds.
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