If interest rates fall, homeowners leading to refinance mortgages, often without pause to consider whether it is a good idea to refinance, or a financial sense. Unfortunately, the owners can be easily attracted by the lure of low mortgage rates, but prices are only a small part of the bigger picture.
Serial refinancing, as I call it love, you make new mortgages whenever prices fall a quarter point. I met a lawyer who has refinanced her house seven times over the past eight years. It was a man who should have been smarter, because every time I refinanced, he said the head at the end of his loan and extended the term of your loan.
What is refinancing?
A loan of money is a loan to buy home, secured by a borrower to buy a house. A refinance loan is a new loan that the borrower will pay the original mortgage or taken in case of serial refinancing, refinance loan charged on credit last year. Refinancing of the loan is usually the first place, but you can also refinance a mortgage.
Drawbacks to Refinances
- Costs. If you pay the fee for the loan, it costs money to get the loan, you can not get a lower interest rate for a number of years. To understand this, and all costs. Calculate the difference between your old mortgage payment and your new payment. Divide the difference in borrowing costs that the number of months you have to pay your new loan to break-even is the same. If your cost $ 4,000 loan, for example, and the monthly savings are $ 100 per month, you have 40 months to return to the refinancing.
- Amortization period is longer. Although you will shorten your amortization period, you may not qualify for the higher payments, you may still want to pay more every month just to pay off the loan faster. Borrowers typically extend the life of the loan. If you need a loan of 25 years to refinance for a new loan of 30 years, you have transformed what was originally a 30-year bond with a loan of 35 years.
- Bigger mortgage. By rolling the cost of your loan in the credit yourself, you take a large mortgage. A large mortgage eats your equity position. Also, if you cash out, be a so-called cash-out refinance, your loan balance increases. Some borrowers take cash from a refinancing to pay bills by buying unsecured. If you bought the furniture, for example, and you pay off the furniture store, you now have furniture for 30 years of finance, which may be a useful life of ten years.
- Repayment of unsecured credit cards eliminate the current debt, but only if you never use the cards again. Consider cutting your cards when you put you in debt, so your only recourse is the roof over your head could refinance.
Advantages of Refinancing
- Low monthly payments that you plan to go home long enough to recoup the refinancing costs stay again, may cause a lower interest rate and payment in a greater monthly cash flow.
- Shorten the amortization period. If your interest is much lower than the previous sentence, you should consider shortening the term of your loan in exchange for a mortgage payment is slightly higher. Anticipate when you could invest part of this additional capital elsewhere for better returns.
- Cash on hand. Many get money to play at a higher rate of return that the new interest rate to invest.
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