& Cons of Refinancing Your Mortgage
Many people with mortgages are
taking refinancing into consideration. Whether they’re out of money and need to
find ways to decrease their debt, or simply want to get rid of it much earlier,
mortgage refinancing is a concept that can make this possible.
Simply put, mortgage refinancing
is a new loan that you take in order to replace the already existing one. You
hear your neighbors and colleagues at work talking about the advantages it
packs, but is it really that perfect, or does it have its flaws as well? There
is nothing that is entirely perfect and, as you can imagine, there are
downsides to mortgage refinancing as well.
Our Excel Mortgage Calculator can also help you determine if it’s right for you. So, let’s examine the pros and cons of this concept and determine whether you should consider it or not.
Pros of Refinancing Your Mortgage
By refinancing your mortgage,
you’re lengthening the term of your loan. Although this doesn’t sound dreamy,
you’ll have more money to save each month, and less money to spend paying off
installments. In other words, affordability will increase. It’s better to check
a mortgage refinance calculator and
see whether this option will work for you.
The interest rate is one of the
main reasons why people consider refinancing their mortgage. When the loan repayment
is already high enough for you, the last thing you want is to deal with a high
interest rate too. Through refinancing, you have chances to lower not only the
interest rate but also the actual mortgage payment.
- You Might
Get Cash Back through Equity
If you’re the happy owner of a home with lots of equity, then you are lucky. By refinancing your mortgage, you may even get back some of the money if the equity is enough. Therefore, you have the opportunity to use the money for reparations, improvements or paying other debt.
Cons of Refinancing Your Mortgage
If you want to refinance, you
will need a lot of time, which can be difficult if you are someone with a busy
schedule. You need to look for reliable lenders, choose a loan and sign closing
documents. So, if you’re always busy, this might not work out for you.
One of the many things that put people off when they check a mortgage refinance calculator is the cost of the refinancing process. It requires closing costs, which could sometimes be as much as 6% of the amount of the loan. Usually, these can be included in the loan balance, but you may also be required to pay on spot when closing.
Sometimes, the loan term may
extend, leaving you to deal with the loan for much longer than you initially
thought. It may end up being repaid 10 years later, and dealing with a loan for
that long can be nerve-wracking.
Mortgage refinancing can be very
useful for some people, but it also comes with its own set of drawbacks, as you
were able to see. It’s better to use a mortgage
refinance calculator before you apply, so you can determine if it’s the
right course of action.