Mortgage refinancing Why You should refinance your home

Mortgage refinancing is method by which you can take out a new mortgage loan by replacing your old loan. Mortgage refinancing can be done for a number of reasons. You may want to take out cash, change the loan term, and change the loan type and so on. However, refinancing has its disadvantages along with its advantages. Here are some advantages and disadvantages of refinancing explained below.

What are the advantages of refinancing?

Getting lower mortgage rates – Adjustable Rate Mortgage or ARM rates rise as per the market mortgage rates. If the rates have a rising trend, then your loan payment per month will also increase and thus you might face financial trouble. At such times you can refinance into a fixed rate mortgage with a lower interest rate in order to make your mortgage payments affordable.

Refinancing is affordable – The expenses involved with refinancing can total up to around 2% of your total loan amount. A mortgage refinancing is worthwhile for you if the savings that you can make on your payments will be able to pay for all your refinancing costs within a time span of 2 years. This is called the “break-even” point and the quicker this point comes for you, the more advantageous your refinancing is.

Consolidate your loans – If you have more than one mortgage on your house , that is first mortgage and second mortgage, then in order to make the loans more affordable and easier to handle you can take out a refinancing loan and pay back both these mortgages, thereby consolidating them into a single loan.

You are planning on long term stay – If you have grown roots to your home and plan to stay in your home for a long period of time, then refinancing may make sense in some situations. If you have a long time to make your mortgage payments and your rates are higher than the market rate or you have a balloon mortgage, then you can refinance in order to get lower rates on your mortgage.

What are the disadvantages of refinancing?

Refinancing might not be very helpful for you if the following situations are applicable to you.

You have a low credit score – Refinancing with a less than average credit score can spell doom for you. This is because the lenders check your credit score before giving you a loan in order to judge your creditworthiness. If you don’t have a good credit score, you won’t get a loan at suitably low interest rate.

You don’t plan o stay on – If you don’t have long term plan to stay in your home and want to sell the home within a year or two, then there is no point in refinancing.

Thus, now you know how to handle refinancing in order to get the best out of it.

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