Learning When Not to Refinance

Learning When Not to Refinance



Refinancing your home may be one of many ways for you to reduce your monthly payments or extend the life of your loan. This can be achieved by lowering the interest rate that you have to pay for your mortgage. Whenever the market interest rate is low, many home owners are tempted to refinance their homes. They believe that they should take the advantage of the low interest rate so that they could benefit from it. Of course, it may make sense for home owners who bought houses when interest rates were higher to do so but you may want to bear in mind that refinancing may not be the right move for everyone. Many people have made the mistake of refinancing thinking they could reduce their expenses but they ended up paying more now than if they had stuck with the loan they already had.One of the most important things you may want to consider before making a decision whether or not to refinance is the equity you have in your home. You may benefit more from refinancing if you still have high equity in your home. It probably would not make any sense if your home equity has decreased significantly and you still wish to continue on refinancing your home. Many banks may require at least 20% equity for them to approve your refinancing application. The higher the equity the better deals you may get. This may be why it may not be a good idea for you to pursue refinancing your home if there is no equity on your home because chances are you may be slapped with high interest rates and no fee waivers. In the end you probably would end up paying more money instead of saving it. You may be required to have good credit history in order to get the best deals in refinancing your home. If you have to ask yourself "From whom can I get help with my refinance because I have poor credit history?" you may be setting yourself up for a lot of trouble. If you have missed payments, overwhelming credit card bills or stressed your credit you may not be qualified for very low rates that are normally offered to consumers with high credit score. If the interest rate you get is the same or higher then you probably would be better off sticking to your current mortgage and pay it off until the end of its loan term. If your main purpose of refinancing is to reduce your monthly payments and reduce your interest rates then it would defeat the purpose if you pursue refinancing with a credit rating that is less than satisfactory. Of course, there are refinancing options that cater to consumers with poor credit but there is always a catch. It would probably do you much good if you make an effort to improve your credit score prior to refinancing.Many people are asking the question "Can I refinance my home if I only have five years left on my current mortgage?" The answer is "Yes, you can." However, you may not be doing yourself a favor by doing so. Generally many experts might agree that if you are already more than halfway through paying off your current mortgage it would probably be better for you to stick with it and pay your way through up to the end of the loan term. The reason is simple; you may increase your costs in the long run. For example, if you are already on a 30 year mortgage and you wish to pursue refinancing your home to another 30 year mortgage when you have only 10 years left on your time to keep making the monthly payments you may end up paying your lender more than if you had stuck with your original loan.You may have to evaluate your own finances before deciding upon refinancing your home. It may sound like an all-time good idea in theory because doing so may reduce your interest rates significantly. However, if you look closer into your finances you may find that just because refinancing may help other home owners reduce their expenses it may not always be the same case for you.