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There are many people in today’s society that have, for one reason or another, found themselves in massive financial difficulty. Especially since we all experienced reduced economic activity during the Covid-19 lockdown of 2020. Let’s explore What is the downside of refinancing your mortgage?
According to Cision, in 2020 Refinance mortgages make up 65% of home loans.
The reasons for this financial strain are widespread but typically include credit card debt, loan debt, car loans or house mortgage problems.
All of these things are serious debt and during our study we have found that there is a typical pattern of events surrounding the persons financial challenges. Read on and see if this sounds familiar to you or your loved ones:
1. Person has a stable job or regular income.
2. Person feels comfortable that income will remain stable and is also victim of the “instant gratification generation”, where we refuse to save and wait; so the person gets a loan to buy a new car, new clothes or even a house.
3. Person then either
a. Loses job
b. Acquires more loans (because they need more stuff)
4. The debt that they’ve acquired then starts eating away at what ever money was left at the end of the month. Suddenly the person realise the difference between wanting something and needing something.
5. Person then borrows more money to help prop up the existing debts, usually with credit card spending.
6. The pattern gets repeated until suddenly the monthly out goings are more than the incomings
And then before you know it, the person finds themselves in trouble because each month the debt gets bigger and bigger.
This is a sad but very common story in 2020.
So then we ask: What is the downside of refinancing your mortgage?
One of the options that someone in this position usually overlooks is the value of the house that they are currently mortgaging.
There are two options to a home owner to get out of the debt spiral; they can either sell the property (but it’s not a quick solution and is not ideal as you risk being without a roof over your head) or option 2 more appealing, they could refinance the property (the technical name for this is ‘Refinance Home Equity’ / ‘Refinance Home Mortgage’).
Most banks offer this refinancing option, and you can also approach a private company for a ‘Home Equity Loan’ should the banks not assist you.
The thing to remember about refinancing your home (whether ‘Refinance Home Equity’ via a bank or ‘Home Equity Loan’ via a loan company) you are essentially borrowing money against the value of your home, and so if you default on this loan then you are at risk of losing your home. For this reason, you should always make this loan repayment first, before you pay anything else.
The best risk adjusted strategy to address the issue of: What is the downside of refinancing your mortgage?
1. Not going local. Find local home refinance companies as you may receive better rates and customer service. If you Google “home refinancing” and click on Maps, you should see your nearest and you can even read the client reviews.
2. Only getting one quote. Find the best refinance loan rate by approaching numerous companies.
3. Not paying off other debt. Pay off your debt that has the highest interest rate or fees first. This is usually a credit card or personal loan.
4. Buying a brand new car with the money. If you are refinancing to purchase a vehicle, then consider buying a vehicle that is 2 years old with less than 24 000 miles on it. This is the sweet spot for the best combination of vehicle depreciation and low repair cost. Watch the quick explanation on this logic below:
5. Not doing enough research. Whether you’re looking at mortgage loans or equity loans be sure to shop around – the larger banks might make an offer to stop you using the smaller refinance provider
This risk-adjusted approach can help you tremendously in moving forward financially. There are clever ways to use credit to improve your life.
Refinancing is the process of replacing an existing mortgage with a replacement loan. Typically, people will refinance their mortgage so as to cut back their monthly payments, lower their interest rate, or change their specific terms from an adjustable-rate mortgage to a fixed-rate mortgage. The fixed-rate mortgage is helpful for creating a monthly budget and not falling short suddenly if the rate went up. Sometimes in order to fund home renovation projects or paying off various debts, it can be wise to leverage the equity in their house to get cash at a lower rate than a personal loan or credit card.
Regardless of your goal, the particular process of refinancing works much within the same way as once you applied for your first mortgage:
You’ll have to take the time to research your loan options, collect the proper financial documents and submit a mortgage refinancing application before you’ll be able to be approved.
Benefits of a Home Refinance
There are several reasons to refinance your mortgage. Some of the potential advantages include:
1. Lowering your monthly payment.
With a lower monthly payment, you free up cash to put away as savings or lower other debts and other expenditures. You may reach a point where you have extra cash to put into your mortgage and thus pay it off sooner.
2. Remove private mortgage insurance (PMI).
Some homeowners who have enough property appreciation or principal paid off won’t be required to pay mortgage insurance which can reduce your total monthly payment.
3. Reducing the length of your loan.
For homeowners who took out a mortgage within the early stages of their career, a 30-year mortgage may have made the foremost financial sense. except for those that want to pay off their mortgage sooner, reducing the loan term is also a clever reason to explore home refinancing.
4. Switching from an adjustable-rate mortgage to a fixed-rate loan.
Once you have an adjustable-rate mortgage, your payment can adjust up or down as interest rates change. This may be a scary situation. Switching to a fixed-rate loan with reliable and stable monthly payments can give homeowners the safety of knowing that their payment will never change.
5. Consolidating your mortgage and your Home Equity Line Of Credit (HELOC).
By rolling these into one monthly payment, you’ll alter your finances and concentrate on one debt. HELOCs typically have adjustable rates.
6. Using the equity in your to raise money.
With rising home values, you may have enough equity to be able to settle other debts or even start your own side-business. This cash raised against your home equity and thus has a lower interest rate than borrowing in other types of loans.
Refinancing a mortgage will lower your monthly payment and reduce your rate. However, one major downside of refinancing is that it restarts your loan term.
Mortgage rates and disposal standards vary across banks and other lenders, thus it’s a clever idea to researc multiple mortgage lenders. raise lenders for full revelation of points, closing prices, and different fees.
Currently, the everyday rate for a three year fixed-rate mortgage is 3.23%.
There are several loan calculators on-line which can facilitate the process for you. Now you have more information on the question: What is the downside of refinancing your mortgage?
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