Refinancing your home mortgage has both benefits and consequences. It introduces you to a whole new, different financial situation. All the potential hazards from your first mortgage loan are still there, and few more may sometimes be added.
Some lenders like to take advantage of ways to get more money out of you. Some even charge you with overpaying on some closing costs. Refinancing your house can be tricky so make sure that everything is clear between you and your refinancing lender.
Also, overpaying on your mortgage interest because you don't want to pay on closing costs is not as good for you as you might think. Refinancing doesn't require borrowers to have cash to close. However, that doesn't mean that some lenders wouldn't make up any excuse to charge you a much higher interest rate. It would in fact be detrimental, especially to those who are only applying for refinancing because they barely have enough pay on their current loan.
Another danger of refinancing is losing the property's equity. The only part that you've already paid off is the only part that will be considered your property. So the amount that you pay each month until the home mortgage loan has been completed will be yours, and you'll have all the money if you decided to sell it. However, by refinancing your house, you're only restarting your loan’s balance. So it's basically like starting your mortgage over from scratch. Aside from that, you're only paying interest rates if you keep your mortgage any longer.
Opting to refinance your home at a wrong time would also negatively affect your net worth. Although refinancing can lower your monthly home mortgage payments, it often makes the loan a bit more expensive because of the interest rates that you will be paying together with the additional years of your home mortgage. If you're opting to refinance your home because you don't have the capacity to pay it any longer, then doing so might actually be a worth it. However, if you are planning to save money, then refinancing your home doesn't translate to any long- term savings for you.
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Primary Residential Mortgage, Inc.
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