Should you refinance your mortgage?
Refinancing mortgages have proven to be one of the most popular home loan options for those with good credit.
However, there are also some disadvantages to consider when opting for this. Here’s a look at the major pros and cons associated with refinancing your mortgage.
The advantages to refinancing your current home loan are many.
If you currently have a lower fixed interest rate than your mortgage lender, taking advantage of a refinance mortgage may give you the ability to refinance at a better interest rate than what you have now.
Pro: Refinancing can reduce your monthly payment
Refinancing can also save you money by reducing your monthly payments by as much as half. The reduction in monthly payments can help reduce your financial stress related to paying your mortgage.
Con: You will lose your home
The main disadvantage to refinancing is that you will lose your home.
The loss of your home in a refinance transaction doesn’t take place until the end of the mortgage term. This means that you won’t be losing your home until you have missed several payments.
This disadvantage is offset by the increased possibility of enjoying a better interest rate by refinance. If you have a large amount of debt, the amount of money you could save by refinancing your mortgage could be greater than the amount you could lose by foreclosure.
Even a modest improvement in your financial position can help you avoid foreclosure.
Pro: Pay off your debts faster
One of the major benefits when you choose to refinance your mortgage is that it can eliminate up to two thirds of your debt.
This means that you can pay off your debts faster, leaving you with more disposable income.
In addition to getting rid of any accumulated debt, a refinance can also give you a new loan that you can use to make larger purchases such as homes.
With the economy the way it is many people are struggling to make enough money to make ends meet. A refinance can help you increase your monthly income while simultaneously reducing the amount of money you owe.
Before refinancing your mortgage, try a longer loan term
If you are considering to refinance your mortgage there are several factors you should consider before taking out a loan.
For example, you should determine how much of your income will go toward paying off your loan. You may be able to lower your monthly payment with a longer loan term.
A longer loan term will also lower your interest rate and keep your monthly payments down. Before deciding on a refinance mortgage you should also evaluate if you will save money by refinancing rather than selling your home.
Search for the perfect mortgage lender
It’s important to compare refinancing mortgage options with those of other mortgage lenders.
While competitive rates and terms are good when it comes to getting a loan approved, make sure you don’t sign up for the first refinance loan offer you get.
You should shop around and see if you can find a better deal elsewhere. Some home owners purposely put their property on the market in order to get a better rate.
By offering a better deal, you might be able to attract a better buyer, which could increase your chances for a successful refinance. Another advantage to shopping around is that you can find out if you can qualify for a no documentation refinance mortgage.
Consider Home Equity Loans (HELOC)
If you are trying to decide between a refinance mortgage and home equity loans (HELOC) to finance your next purchase, you should research the pros and cons of both types of loans.
The advantages of a refinance mortgage over a HELOC include lower monthly payments, but HELOCs have higher interest rates.
If you plan to stay in your home for a long time, it’s probably a better idea to get a refinance mortgage since you won’t have to come up with as much money as with a HELOC.
But if you plan on moving within a short period of time, a home equity loan makes more sense.
If you are considering getting a refinance, make sure you are in good financial shape before you take out a new mortgage loan. Even a little traffic ticket or medical emergency can wipe out some of your refinancing savings. So it’s important to make sure your credit is in good shape before you apply for a refinance mortgage.