How does locking in a 30-year fixed-rate mortgage with an interest rate of 5% sound? Great, right? If a financial institution gave you that offer, won’t you be tempted enough to take it right up? We’re sure you would.
It definitely makes a lot of sense to refinance and save your money at low-interest rates. But, it’s truly beneficial only if you are wise about it. There are several factors you must take into consideration before signing a mortgage refinancing agreement. After all, there are situations wherein it isn’t the most logical choice since it may have a huge impact on your financial situation.
In this post, we will take you through the most common reasons why you should be thoughtful before refinancing your home loan.
Extension of the loan’s term
When you consider refinancing, you eventually end up extending the amount of time in which you will have to repay your loan in the coming months. For instance, if you apply for a new 30-year loan in exchange for your existing 30-year loan, the payments are calculated to last for the next 30 years.
Now, if your current loan has 10-20 years of repayment, your remortgage will end up soaring up the interest costs. This is why, when you get a new long-term mortgage, a huge chunk of your payments is diverted towards the interest charges in the early years. But with an existing loan, you might have moved past those years, and your remittance would end up making a relevant dent in your mortgage balance. If you remortgage, remember you have to start from scratch. Therefore, choose wisely.
Recourse scores
In some states, property purchase loans have special providence from the creditors. In the course of foreclosure, moneylenders might not be permitted to sue you if they lose funds on your loan and the successive house sale. These legal actions are known as deficiency judgments and trust us when we say this, they can haunt you even after you leave your property!
But remember, these rules are only applicable to your bonafide purchase loan, and refinancing your mortgage switches the nature of your loan. This means it’s no longer the original credit you used in order to procure your home. As a result, you might end up losing some protection.
To sum it up
While the above-mentioned reasons might sound a bit scary, mortgage refinancing can prove to be quite beneficial for many people. So make sure that before refinancing your home loan, you familiarize and educate yourself about how remortgage works. Moreover, don’t forget to take advice from your local real estate attorney.
We hope this post was able to clear your doubts regarding refinancing a mortgage. If you’d like to know more about refinancing or mortgage in general, don’t forget to leave a comment below!
