Should You Re-Finance Your Home?

Posted by Office Staff on Monday, September 22nd, 2014 at 1:52pm.

Lender sitting with buyers.Refinancing mortgages can either be good or bad depending on one’s financial situation. Various pros and cons need to be looked at carefully to so that one can arrive at the right decision. What exactly makes people want to refinance their mortgages? Looking back to the beginning of year 2012, the interest rates fell to an historic low. This led to many homeowners refinancing their mortgages. Refinancing a mortgage simply means getting a new mortgage to replace the old one. Better interest rates and loan terms are the main reasons making people refinance their mortgages.

The interest rates might have gone high slightly but the figures still remain close to what people experienced in the year 2012. This may still prompt one to change their current mortgage with better options. But this is not the case most of the time. One has to consider his or her current financial situation before deciding to make any decisions.

Lets have a look at the benefits and drawbacks of refinancing so that people can be able to make an enlightened decision when it comes to refinancing their current mortgages.

What are the Benefits?

1 One can quickly pay off the mortgage in a short duration. This is possible if the interest rates become low. One is capable of getting a mortgage with a short payment period. Such mortgages can be paid off quickly as the monthly payment does not change much.

2 If refinancing will give you a low interest rate, you will automatically end up saving some extra cash that could have been used to pay the loan. Who doesn't want to have more money in the bank? But then one has to be careful on how to spend the extra cash. Otherwise you will not see the real benefit of refinancing. Remember this extra cash was meant to pay a loan you took for your home. You can go ahead and use the money to pay other loans like the student loan, payment of debt or just save it p for emergencies.

3 Refinancing can also give you access to more cash. Refinancing your loan for more than what you owe will automatically give you extra cash. This money can further be used to make renovation to the home so that you can increase its value or even choose to pay your child college fees. If there is any bad debt, then the money can be used to pay it off. But never go refinancing so that you can pay debts. This might give you more debts to pay if there is no other plan to pay your debts.

4 Your mortgage payment can increase if you have an adjustable rate mortgage. Refinancing can give you a fixed rate which can end up saving a lot of cash due to changes in your rates. This way, you are assured of not having any hiking charges that you never expected in future.

Disadvantages of refinancing

1 Additional costs are created whenever people look to refinance. The fees for applying and processing your application is an additional cost that could have been spent somewhere else. There are other charges that will come up including the title searches, appraisal, credit reports and discount points. Refinancing can only work well for you if you don't plan to move within the next 7 years. Closing costs of refinancing in 2012 alone was $3,754 on $200,000 loans.

2 You might be putting your home at risk without actually knowing. You should not refinance so that you can pay some outstanding debts somewhere. This might not work and you may end up lacking ways to generate money to pay your monthly loans. There must be sure a plan on how to repay the mortgage or else you might end up getting numerous collection calls. this might work bad for you in the long run as your credit report might be ruined making it hard for you to get any loans in future. You may eventually end up losing your home if you cannot pay as agreed.


It is always advisable to talk to your current lender before considering refinancing. If they don't require a title search, they might help you save. You can even pay your loan for the next 12 months before refinancing to give you some space when paying. Generally refinancing can be helpful if done with the right reasons. It is also advised to look at all your lenders at the same time to avoid damaging your credit report. Lower payments or better paying terms can be helpful when it comes to seeking for more loans in future.

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