If you purchased a home a few years ago via a residential mortgage, the chances are that you put a deposit down. For a standard mortgage this would be in the region of 20 to 25% of the overall value that the property was sold for. As time passes you will be paying off the mortgage and the amount of money outstanding will be reduced. There is a good chance that the value of the house will have increased in the intervening years too. These three factors produce equity in your home. The equity is, essentially, the value that your home is worth minus the amount of money you owe the bank via the mortgage. Equity is often one of the major reasons to refinance your residential mortgage.
Most lending institutions apply the same lending conditions to refinance mortgages as they do to ordinary mortgages. This means they want you to keep about 20% equity in your home. This is a buffer mainly for them (but also you) against any unforeseen circumstances like a depressed economy or natural disasters. However, some lenders will relax this criteria if you have a better credit rating or are bringing in a higher monthly income. So you may be able to keep 10% equity in your home and get a lump sum of money with the refinance. Thus the main reason to refinance is to use the lump sum towards some desired goal.
Some of the things that people do with this lump some are :
* Pay off or consolidate existing debts from high interest sources like credit cards or bridging finance,
* Use the money to renovate or remodel their home - add an extra room, a swimming pool, solar paneling,
* Pay for education - improve careers prospects through tertiary or professional qualifications,
* Pay for medical expenses,
* Pay for luxury or indulgent items such as a holiday, new car , wide screen TV,
* Use as a deposit or down payment for an investment property or holiday home,
* Use to invest in shares or other investments.
There was much debate, a few years ago when the housing market was booming in most regions, that people were being a bit shortsighted by using their equity to buy things that had no long term value. This decision is down to the individual. For instance, a holiday that was financed through home equity might be seen as wanton but it could reduce stress or repair a relationship that might reap huge emotional and financial benefits down the line.
In general, however, it is usually better to use home equity to create more money. Things like home improvement, buying an investment (shares or property) or financing education will all get a return provided the initial investment was sound.
Things that have no long term value or depreciate quickly may be seen as a bad way to use home equity. New cars depreciate quickly. As much as 30% of the purchase price can be lost in 3 years. New technology, like plasma TV's and computers have little or no resale value over time.
Refinancing gives you the chance to get a large lump sum of money. This can be used to leverage a better financial future or can be spent indulgently.
Find out some of the considerations and steps to refinance a house and other things you can do with home equity, such as debt consolidation refinance by visiting http://www.homerefinancenloans.com/ . Adrian Whittle writes on ideas for generating finance for home improvement or investment.
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