The prevailing economic conditions have put a financial strain on many American families and they are looking at borrowing more money to survive and protect their lifestyle. One of the emerging trends that has been highlighted is that many people are looking to refinance their homes.
It is important that you weigh all the options, before making any decision. If you are in financial trouble, you need to analyze your spending habits and mark out areas where you could save. Try to figure out if there is any other way to overcome your financial crunch, because you might end up losing your home if you aren't able to pay your debt.
Benefits of Refinancing
✦ If you have 2-3 different loans like credit card and personal loans, along with your first mortgage, you can consolidate all these loans by refinancing your home loan. This way, you do not have to pay separate installments, as you only pay one.
✦ Consolidating your loans by refinancing will also enable you to pay a lower installment, than the combined amount of installments you were paying earlier. This way, you can save some money from your income and possibly invest it for good future returns.
✦ Check the interest rates in the market. See if it is possible to get a lower interest rate, than the one you are already paying. You can also choose a fixed or variable interest rate option to save money.
✦ If you have a good credit score, you will end up saving a lot of money by taking second mortgage loans in the form of interest rate cuts and low installment plans. Doing this also eliminates your cash flow problems and helps you manage your monthly expenses in a better way.
Disadvantages of Refinancing
✦ Calculate the interest rates carefully, as you might end up paying more than you already owe and that can adversely affect your financial position. Don't get sucked in by the low monthly installment, as you might end up paying considerably more in the long run. Refinancing your home with bad credit also translates into higher interest rates.
✦ Refinancing translates into extending the period of your debts and this can have a negative impact on your credit rating. Having debts for extended periods will also put curbs on your future financial planning.
✦ The cost of refinancing your home can add up to make it nonviable, as a financial solution. You will have to pay credit report charges, application fees, and closing costs.
✦ When evaluating pros and cons, the biggest negative is the dues. Penalties imposed on refinanced loans can be heavy and you need to check the terms of the contract for details. Refinancing your loan will also present problems in title search and insurance.
✦ Recent economic conditions have led to fluctuations in the real estate market. If these conditions prevail, property rates will keep falling and you will end up paying more than the actual cost of your property.
The importance of considering the pros and cons cannot be stressed enough, because a wrong choice will affect your future. It is advisable that you talk to different mortgage companies and check their terms and contracts to make an informed decision.