Getting an FHA stream line in Utah is an excellent way to help you build equity in your home. Unlike most refinancing options, a streamline won’t have you jumping over hoops to enjoy lower rates. Lowering interest rates improve your ability to pay off the mortgage while minimizing the chances of defaulting.
Each mortgage payment you make comprises of two parts — the interest and the principle. All of the interest you pay on a loan goes to the lender for the privilege of fronting you the money. It’s the money that goes toward paying off the principle that build’s home equity and growth your wealth.
Why refinance a mortgage?
Most mortgages are amortized, making the interest front-loaded. With amortization, a portion of your monthly payment goes to towards repaying the principle, while the rest goes towards the cost of borrowing the money. Initially, more of the monthly payment goes towards repaying the interest.
Front-loading limits your ability to build equity quickly as the lion share of the money goes towards paying the bank. A high-interest rate leaves you out of pocket without helping you to build home equity. It also increases the total costs of the house.
Refinancing at a lower interest rate lets you reduce the total cost of the loan, which helps to lower the final cost of the house. It allows you to use most of the money you pay each month in increasing your stake in the home. It can also help you pay off the loan within a shorter period.
How does refinancing help you build wealth?
Financially conscious people get to build their wealth quicker than those who aren’t. Part of this enlightenment entails knowing how having a high-cost loan affects your finances.
As mentioned earlier, all the interest payable on a mortgage goes to the bank and doesn’t feature anywhere in your wealth building plans. Savvy people go to great lengths to secure low annual percentage rates on their loans.
That helps them reduce the amount of money they pay out to other parties and use it to build equity in the home. A small reduction in the interest rate translates into a considerable saving, especially when you have a long mortgage.
One other added advantage of refinancing a home is that it reduced the total cost of owning a house. You will pay more for a $200,000 house at an interest rate of 5 percent APR than a neighbor who secures a rate of 3.5 percent.
All things held constant, you’ll both end up with a 200k house, but you will have paid up to 50k more. Won’t you rather put that money to better use?
If you’re looking to build your wealth with each passing month, you need to refinance your mortgage. Lowering the amount of interest payable on your home loan frees up a considerable amount of money.
All the money that you pay out in the form of interest doesn’t go toward building your wealth as it part of the cost of borrowing. It’s in your best interest to trim the cost borrowing as it also helps to lower the total cost of the home.