Refinancing a mortgage can have some certain benefits to it. However, it can also lead to a worse financial situation. In Utah, you can refinance your mortgage if you find a better loan with lower interest rates, or if you want to decrease your monthly payments due to current circumstances. Despite having many advantages, mortgage refinancing is not always a good idea. Learn some of the most common situations wherein refinancing should be the last option on your list.
- To get a longer repayment term
Homeowners in a pinch may seek a repayment term that has lower monthly payments. This situation can arise from unexpected drawbacks such as losing a job, having an accident, or acquiring more debt. Refinancing your mortgage to get lower monthly payments may seem like a good idea, but the overall cost of the loan may be higher since longer repayment terms have higher interest rates. Not only do you pay more money in the long run, but you are also saddled with more years of the mortgage.
- The closing costs are too high
If you decide to refinance your mortgage, you can pay the costs out-of-pocket or get a higher interest. Before you consider refinancing your loan, think about the money that you have on hand. Closing costs can set you back several thousand dollars. Can you spare the money now or do you need it for other expenses? If the closing costs are not in your budget, maybe refinancing is not the best idea for you now.
- Consolidating your debt
Homeowners that have multiple debts can opt for debt consolidation, otherwise known as cash-out refinancing. This type of loan can help you pay off other debts such as credit card bills, car loans, SBA loans, etc. Doing so can help you get lower interest rates, but it is also very risky. If you cannot pay your loan balance, you put your house at risk for foreclosure.
- To take out cash for other purposes
People may refinance their mortgage to take out cash for other purposes, such as investments or businesses. If you are a disciplined spender and a knowledgable investor, refinancing your mortgage to get extra cash may be a good idea. Otherwise, it may not be worth it. Consider other options to finance your investments or business ventures.
- If you are moving soon
If you are planning to move in a few years or so, it won’t make financial sense to refinance your mortgage. Consider the number of years it will take you to hit the break-even point, wherein you recover the closing costs from refinancing. If you are planning to move before the break-even point, refinancing is a pointless process for you.
Refinancing a mortgage can be a good option in some situations. But with the circumstances and purposes stated above, it’s clear that not everyone will benefit from a refinance loan. Before you consult with a lender, be sure to consider your options carefully, then decide if refinancing will be best for you.