Buying a home is likely the largest purchase you will make in your lifetime. Whether this is your first home or not, having a mortgage is a major financial responsibility. For many homebuyers, getting a low interest rate is ideal, but of course it isn’t always possible. After a long period of historic lows, interest rates began rising a few years ago.
Eventually, the market will change and bring the rate down, and it will be possible to take advantage of this. Refinancing your mortgage can make a significant impact on your current payments as well as the interest you will pay over the life of the loan. But, with any financial decision, it is important to understand the pros and cons of the process, as well as any potential pitfalls you could encounter.
Factors to consider
When contemplating the refinancing process, there are some steps to take and factors to consider. To begin, you should consider the costs associated with refinancing you existing loan and compare these with different lenders. These can alter with each lender, so it is important to understand what option is best for you.
If your interest rate of your mortgage is higher than the current rate, you should consider refinancing your loan if the terms of the loans are comparable. Ensure that this is not an introductory rate but rather the rate that will remain throughout the duration. Refinancing scams are not rare, so be sure you do not fall victim to one. Finally, consider the overall financial benefits of refinancing, understanding if they are enough to go through this process.
Things to avoid
Refinancing may seem appealing; however, it is not always the best time or the best option for you financially. Thus, it is important to understand the don’ts associated with this process. When it comes to the reasoning for refinancing, you shouldn’t refinance your home to pay off credit cards or other unsecured debts.
Also, you shouldn’t refinance your home for more than its market value. This can put you in a worse financial situation. Finally, if you seek to refinance your home, you shouldn’t refinance your bank loan with a finance company. Often, the interest rate for the finance company will be higher than the standard mortgage lender.
There are many considerations when it comes to refinancing your home mortgage, and a legal professional can help you gain a better understanding. This includes the impact it could have on your credit score, possible closing costs and other possible financial implications. Lastly, you should consider negotiating your refinance rate, understanding what you can and cannot negotiate with your lender.