I’ve refinanced my mortgage…Now what?

    The Mortgage Bankers Association reports that 71 percent of mortgages drafted so far in 2012 have been refinanced. If you’re one of these recent refinancers, you may be wondering…What now?

    There are four basic steps a homeowner should take after refinancing to help reduce debt and save for the future.

    1. Pay down your higher rate loans. Once you refinance and have a little extra money in your pocket, start paying off those debts – like credit cards or a car loan – that come with a higher interest rate. This will have zero effect on your month-to-month budgeting, but a lasting effect on your long-term cash flow.

    2. Build your savings account. A healthy savings account should have enough to cover at least six months of living expenses. Use the money you’re saving through refinancing to store money for a rainy day, a relative emergency or additional home improvements or maintenance.

    3. Overpay. Just because you’ve lowered your payment, doesn’t mean you can’t put a little extra toward each monthly payment. By doing this, you’ll end up shortening your term and reducing overall interest paid.

    4. Open a home equity line of credit. This is an essential financial planning tool that every homeowner with equity should have. It can be used to pay off higher rate debt, as well as serve as an emergency fund. It is imperative to apply for the line before you “need” it, however. If you wait until you have been laid off or financial emergency strikes, you run the risk of not qualifying for this low-rate, commonly tax-deductible line of credit.

    As you can see, the work isn’t done after you’ve refinanced. By reallocating the funds you’re saving into other areas, you can make another positive difference in your overall financial life.


    Michael Kellman is senior vice president of consumer lending at North Shore Bank in Brookfield.

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