Some things to consider before you decide to refinance your mortgage
Sat Mar 7, 2009 | | Posted in Mortgage
Refinancing a mortgage means paying off an existing loan and replacing it with a new one. There can be many reasons why homeowners will want to refinance. Some of them might be:
- The opportunity to obtain a lower interest rate
- The chance to shorten the term of your mortgage
- To convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa
- The opportunity to tap a home’s equity in order to finance a large purchase
- The desire to consolidate debt
- Cover the costs of home remodeling or a child’s college education
There are advantages as well as disadvantages to refinancing. Just like you took out the original mortgage, it can cost between 3% and 6% of the loan’s principal. It requires appraisal, title search and application fees. It makes it important for homeowners to determine whether their reason for refinancing offers true benefit.
Compare your existing loan with the new loan.
In a Nutshell
Mortgage refinancing can be a slippery slope to never-ending debt. It’s important to keep this in mind when considering refinancing for the purpose of tapping into home equity or consolidating debt.
Homeowners may justify refinancing by pointing out that the interest on mortgages is tax deductible. While this argument may be true, increasing the number of years that you owe on your mortgage is rarely a smart financial decision, nor is spending a dollar on interest to get a $0.30 tax deduction.
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Information contained herein is general in nature, and is provided for informational and educational purposes only. Past performance is no guarantee of future results. Talk to your financial adviser.
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