Many homeowners refinance for reasons, which include taking advantage of lower interest rates, moving from variable rate to fixed rate or to take advantage of the equity. Before you apply for refinancing, you should take time to become knowledgeable and consider the advantages and disadvantages.
There are important issues to consider, such as how affordable are the new mortgage installments and how much you will have to pay for appraisal costs and closing costs. One should also think of the possible proceeds of refinancing. The proceeds of the new loan will pay the balance of your existing loan, and the rest will pay out to you. Are you going to make a good investment with the money?
What are the disadvantages of refinancing a home?
The disadvantages of refinancing include:
• A new mortgage will take longer to pay off.
• The lending criterion is much stricter now, and you may not qualify for a new mortgage.
• You can face penalties for settling the mortgage early.
• It is possible that you can be charged with higher interest rates on the new mortgage than what you were paying on the original home loan.
• Refinancing includes costs such as closing costs, fees and registration costs.
What are the advantages of refinancing?
The advantages of refinancing a home include:
• You can obtain a cash amount by refinancing that can be used to consolidate other debts or to spend.
• You can receive a lower interest rate offer than what you are currently paying.
• It is possible to reduce private mortgage insurance by the increased value on your property.
• With refinancing a home loan, you can lengthen or shorten the repayment time.
When you refinance, you pay off the existing mortgage and take a new one. Many homeowners use the equity (market value of the property) that has been built up to consolidate debts, to make home improvements or send a child to university.
Responsible homeowners are always looking for ways to build equity, save money and to pay off debts. If you are taking cash on the equity when refinancing, try to achieve those goals. Speak to a consultant to obtain professional advice.
It is extremely important to have a clear understanding of all costs involved and the long-term consequences. Consider important issues, such as affordability. Refinancing a home should be considered in a responsible manner. It is highly recommended that you consult the potential lender before you take this step.