7 good uses for refinancing savings

Posted by  on Apr 15, 2015

Refinancing can be a golden opportunity to save money -- but only if you don't blow it.

From mid-2007 to mid-2012, 30-year mortgage rates fell by about three full percentage points, and they have stayed below the 4 percent level most of the time since. This drop in rates touched off a massive wave of refinancing. The next question is, once these homeowners have lowered their interest rates, what comes next?

Too often, money saved is quickly whittled away on day-to-day spending. The way to avoid this is to take your refinancing savings and earmark it specifically for something that will help you get the full value out of those savings. Here are some examples:

  1. Build an emergency fund. Refinancing your mortgage loan can make your home more affordable, but a career setback could counteract that and put you in danger of foreclosure. According to the Bureau of Labor Statistics, the median period of unemployment these days lasts about 13 weeks, and it was much higher a few years ago. If you use your refinancing savings to build an emergency fund that could take you through three to six months of basic expenses -- including your mortgage payments -- you will have truly made your home more secure by refinancing.
  2. 15 Yr. Fixed - Refinance Rates from Our Lenders in VA

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  3. Pay down credit card debt. While mortgage rates fell sharply in recent years, credit card rates did not. Federal Reserve figures put the average rate being charged on credit card debt at above 13 percent, so one way you can magnify your savings from refinancing is to direct those savings toward paying down high-cost debt.
  4. Make energy-efficient upgrades. Unless your house is brand new, chances are there are several ways you could improve its energy efficiency. These include new windows, additional insulation, appliance upgrades, or even overhauling your entire heating and cooling system. Improvements of this sort should translate into lower energy bills, so you can use your savings from refinancing to generate more savings.
  5. Make repairs. Whether it is storm damage or normal wear and tear, damage to your home can quickly escalate into bigger problems if you neglect it. Using refinancing savings to make timely repairs can keep your maintenance expenses under control.
  6. Repaint. Repainting your home has both aesthetic and practical value -- you can enjoy a sharper-looking property while knowing that a good paint job can help preserve the exterior of the house and increase its curb appeal should you decide to sell. That makes using refinancing savings to repaint another good way to reinvest in your property.
  7. Save for an addition. Another way to put money back into your home is to add to it. For example, if you are planning a family or need to have aging parents come live with you, adding a bedroom could allow you to stay in your current home rather than move to a bigger one -- and that too should save you money.
  8. Invest in your retirement. Directing your refinancing savings into a qualified retirement account can magnify those savings by allowing you to benefit from tax advantages, and possibly an employer match on a 401k plan.

Low refinance rates are an incredible financial opportunity. Taking full advantage of that opportunity means not just acting on refinancing, but also making the right moves with your savings afterward.

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