Mistakes In Home Refinance Mortgage

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Mistakes In Home Refinance Mortgage

Mistakes In Home Refinance Mortgage

When Home Mortgage Refinancing is a Very Bad Idea
Home mortgage refinancing can save you money or in some cases get you into trouble. The lure of lower interest rates and monthly amounts may look good, but you have to understand the risks. Let’s review how home mortgage refinancing can get you into trouble.
For a refresher on how home mortgage refinancing works, see the page below:
Mortgage Refinancing Basics
In general, you should avoid refinancing your mortgage if you will waste money and increase risk. It’s easy to fall into the traps below, so make sure you steer clear of these common mistakes.

Extending a Loan’s Term
When you refinance, you often extend the amount of time you will repay your loan. For example, if you get a new 30 year loan, amounts are calculated to last for the next 30 years. If your old loan only had 10 or 20 years left to go, home mortgage refinancing will result in higher lifetime interest amounts.
When you get a new loan, most of your amounts go towards interest in the early years, and you will start from scratch. Plug the numbers into a loan amortization calculator to see how your total interest costs will change.
How Amortization Works
Loan Amortization Calculator

Closing Costs
Home mortgage refinancing costs money. You will pay fees to your new lender to compensate them for offering the loan. You may also pay for legal documents and filings, credit checks, appraisals, and more.
Even if a loan is advertised as a “no closing cost” loan, you are paying those fees. Generally this happens through a higher interest rate.
No Closing Cost Refinance Basics

Debt Consolidation
You can use home mortgage refinancing as a strategy to consolidate debts.
Sometimes this helps because you reduce interest rates on your debt, and you may be able to turn clients debts into tax-deductible home equity debts. This can backfire if you:
Are unable to get tax benefits from home mortgage refinancing
Are unable to pay the larger loan balance and risk losing your home
Simply shift the debt and rebuild your consumer debts again

If you are having trouble paying consumer debts, think twice before putting your home on the line.

Recourse Debt
In some states, home loans have special protection from creditors. In the event of foreclosure, they may not be able to sue you if they lose money on the deal. However, home mortgage refinancing changes the nature of your loan: it’s no longer the original loan you used to purchase your home, so you may lose some protection.

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