Pros & 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.
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
- Lower Monthly Payment
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.
- Lower Interest Rate
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
- Spending Too Much Time
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.
- Refinancing Costs
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.
- Longer Term
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.