Home Refinancing – What are the Top 4 Factors to Consider Before Getting the House Refinancing
Refinancing July 26th, 2010
It is unfortunate that many people, having determined that obtaining home refinancing is a panacea for all their financial woes will charge ahead without adequate consideration of the true cost of the house refinancing. Considering the disadvantages will not require a great deal of effort and may not change your ultimate decision, but at least taking a second look at both sides of the picture may prevent you from making a disastrous financial mistake. Only you can determine whether the disadvantages of obtaining a restructured loan are overshadowed by the financial necessities or desires of your family.
Time to repay
One of the disadvantages involved in obtaining home refinancing is that your mortgage term is adjusted. Typically this will extend the repayment period and thus cause you to pay more in interest costs, even if the interest rate is lower. The only way to be certain is to prepare an amortization schedule using various combinations of rates, terms and other factors to see how it affects the total cost and the repayment term length. Occasionally, a refinancing loan is completed in order to shorten the repayment time which usually is an advantage, rather than a disadvantage, since your debt is cleared in less time. This may have the effect of increasing your monthly payment amount.
Additional costs
A strong disadvantage when you obtain a house refinancing loan is that of adding to the costs of your housing. The loan itself may not be a large one, but if you extend additional interest costs over the term of the loan, you will often find that there is a significant impact on your budget and on the cost of your use of money. In addition to interest costs, you will also pay points in many instances plus the origination fees and other broker or lender related expenses.
Declining market
Be very cautious of trying to obtain home refinancing if you live in a community or neighborhood where the housing prices have been declining. The same statement holds true if your neighborhood is slipping into shabbiness. An obviously declining value for your home can result in a home that is over mortgaged with no foreseeable way of righting the balance between loan value and equity in the home. A declining neighborhood will probably make it difficult to sell the home should you decide to do so. You may be wiser to look at some creative financing in order to use the existing equity in your home to get into a better home.
PMI
Obtaining home refinancing can be a positive thing, but it can also provide a danger of charges and expenses that you had not planned for. One of these is private mortgage insurance or PMI. When a loan to value rate drops below 80% with most lenders, the lender may require that private mortgage insurance be added to the cost of the loan. This is to protect the lender from the danger of default on the house refinancing loan where there is little or no equity left on the loan. Private mortgage insurance can cost hundreds of dollars extra.
Tagged with: home refinancing, House Refinancing, mortgage refinancing,
July 26th, 2010 at 9:55 am
What will you eventually do with this house, sell it, live in it etc?
My guess is you might find it hard to get any more money out of it right now but never hurts to try.
If you are not careful and this is a house you all intend to sell you will have way more in it than you can get out in today's markets.
July 26th, 2010 at 10:15 am
This is the last place you should ask. Most of the "lenders" here are cons who will rip you off and sell your ID information.
You really need to ask around in your town for people, who you can meet in person. This is not the right place.
July 28th, 2010 at 4:10 pm
To make sure refinancing makes sense, it's wise to calculate your break-even point. If you are planning on staying in the loan/home longer than that point, generally, it makes sense.
To calculate your break-even point, divide the cost of refinancing by the amount of money the refinance will save you each month. So, say it costs you $3,000 to save $200 a month. $3,000 / $200 = 15. It would take you 15 months to recoup the money spent on refinancing and realize pure savings. If you plan on being in the home for at least another 2 years, refinancing makes sense.
Hope this helps!