Should I Refinance My Mortgage to Access the Equity I Have in My Home?

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There are a lot of great reasons to refinance the mortgage loan on your home. Maybe you want to start making lower regular monthly outgoing payments as interest rates decrease. Maybe you think you can pay off your mortgage in a shorter amount of time. But one big reason why homebuyers sometimes refinance their home is to access the equity they have in their home to make other payments outside of the context of their home.

Refinancing your home to access equity is one reason to refinance that is not usually considered as financially sound as doing it to get a lower interest rate. This is because refinancing in this fashion will extend the amount of time it takes you to completely pay off the loan, and can be dangerous and tempting for anyone who is prone to falling deeper into debt.

But why would homebuyer’s even decide to do this? Well, life can often be unpredictable, and create financial difficulties that you were unable to anticipate when you were signing on your mortgage. Maybe you had a recent medical emergency that created a large medical expense, or perhaps a storm caused significant damage to the roof of your home and you need to refinance in order to afford the cost of repairs. There are lots of reasons homebuyers use to justify why they chose to refinance in order to access their equity, and some are better than others.

It is true that you may be able to add value to your home by refinancing if that is the true reason why you are refinancing the mortgage. If the project you are spending the money on actually adds value then refinancing might be okay, but you should make sure that whatever you refinance for truly adds value. Refinancing to fix your roof can be a great way to add value to and improve your home, but refinancing to do something like build an in ground pool may not add as much value as you think and does, and may not be worth it.

Another reason to refinance that might not necessarily be bad is some kind of emergency that is quite expensive and needs to be paid off soon. However, you should be careful when refinancing to pay for something like this and be absolutely sure that it is your best option for getting the money you need. Before deciding to refinance it is important to do as much research as possible to determine the best way to raise the funds you need. There is a chance if you refinance to get the cash you need you might end up paying a higher rate on the new mortgage.

One reason to refinance that might not be such a good reason is to consolidate existing debt. This can be a bad idea because doing this will not suddenly make a person financially prudent. Replacing high interest debt with a lower interest mortgage may seem like a good idea, but for individuals who are inclined towards unhealthy spending habits may see their debt relief as an opportunity to start spending money again. You should only ever refinance your mortgage to pay off outstanding debts if you are absolutely sure that you will not not start sending a lot of money again once you are relieved of your debt.