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The Pros and Cons of
Refinancing
by Brad Slade
Refinancing has become a valid option for many individuals with high interest
rates on their mortgage. Refinancing is essentially a replacement loan, with a
different lender and (hopefully) a lower interest rate.
So why would you choose to refinance?
- You may be able to take advantage of lower interest rates.
- You may also be able to extend the repayment period of your mortgage. While
you will end up paying more in interest charges for this, this will reduce your
monthly outgoings.
- You may be able to switch from a variable rate to a fixed rate mortgage,
giving you greater security in the future from potential rate increases.
- You may also be able to increase the amount of your mortgage, to pay off
other, higher interest rate liabilities such as credit card debt, cell phone
debt and personal loan debt. This will enable you to save money on interest rate
charges
Why would you avoid refinance?
If you decide to borrow more than your existing mortgage, you need to be wary of
your budget. If you default on your payments you run the risk of losing your
house.
If you do not calculate the costs involved with refinancing correctly, you could
end up paying more in interest charges.
Thoroughly review the contract of your existing loan, an early pay out could
involve a penalty that would negate the benefits of refinancing.
What will it cost me?
Refinancing does carry some costs that you need to be made aware.
Valuation Fee - This is the fee for a professional appraisal of the value of
your house. Credit Report - An assessment of your credit health Escrow - Fee for
money transferred by a third party.
Lender Fees - Any other fees
that are incurred by using a particular lender
Am I eligible? Applying for mortgage refinance is just like applying for another
loan. There is a set criteria for
acceptance. Every missed mortgage payment will count against you in the
application, either resulting in a greater interest rate or a refused
application.
Should I choose refinancing? You will need to assess your current mortgage and
the changeover costs and savings to ascertain whether it will be of benefit to
you. There are specific refinancing calculators that can help you determine the
net gain. The best one that I have found is here calcbuilder.com As a rule of
thumb many lenders advocate that a 1% gap between your current interest rate and
a refinance rate makes refinance a worthwhile option. Always make sure to speak
to a financial professional before deciding to refinance your mortgage.
About the author:
More information of mortgage refinancing at
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