Is Refinancing Your Home a Good or Bad Idea?

Are you having thoughts on refinancing your home? Most people think about refinancing their homes to get a break from the pressure of paying the bills. But first, do you know what refinancing means?

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Advantages of Refinancing Your Home

What is refinancing? In simplest terms, refinancing is when you get a new loan to pay for the old one. To think things through, here are the pros and cons of refinancing your home:

Change the Loan Term

If you’re under financial stress lately, refinancing your home will help you change your loan term to longer years, such as going from a 10-year mortgage to a 20-year mortgage. This will effectively lower your monthly payments.

Lower Interest Rate

If you’re doing well financially, refinancing is also a great way to lower your interest rate. You can shorten your loan term and raise the monthly payment, but you’ll save more with lower interest rates. You’ll also be able to own your home faster after you’ve paid off your mortgage. 

Get Fixed-Rate Mortgages

Having adjustable interest rates for your payments will cost you more since the unstable rates can increase significantly at any time. Changing to a low and fixed interest rate for your monthly payments is a good way to avoid the possibility of the rates going up. 

Have Access to The Equity You’ve Built

Over the years, you have tied equity to your home, and when you refinance your home, you can have access to some of the equities you’ve built. You can use the equity to buy investments that can be a property or business asset or fund renovations on your house to increase its value.

Disadvantages Of Refinancing Your Home

Risks are always part of making financial decisions. Before taking the leap, you need to know the potential challenges you’ll face if you decide to refinance your home.

Here are some of the disadvantages you should be aware of:

It Takes Time

Refinancing takes time, money, and resources to secure a low-interest rate. This can take up weeks and months of your time, especially when financial institutions don’t see the potential for change in your payment records. 

Anticipate Closing Costs

Refinancing has closing costs that can reach thousands of dollars. If you’re having financial troubles at the moment, refinancing can be a bad idea since the closing costs range from $200-$5,000. However, there is also an option where you can add the closing cost to your loan and pay it back monthly, but this means there will be an additional interest rate for your closing costs.

It May Affect Your Credit Score

Refinancing your home can affect your credit score, especially if you opt for a longer-term loan. The credit accounts you have will have a low possibility for extension with an assumption that you’re under financial pressure.

Conclusion

Refinancing your home has its pros and cons, and it’s still up to you and the current situation you’re facing to decide on what’s best for you. Whatever you decide, make sure you are prepared and understand what your future will look like with refinancing.