Pros and Cons of Mortgage Refinance Programs

Pros and Cons of mortgage refinancingRight now historically low interest rates are abundant, so you might be wondering if you should refinance your mortgage loan. Unfortunately, the low rates aren’t the only factor that should help you make a decision. Things like your interest rate, the cost of refinancing, whether you’re planning on moving out in the near future, and the loan to value ratio all come into play when deciding to refinance. Let’s talk about the pros and cons of mortgage refinancing, so you can get an idea about the direction in which you should be heading.

Pros of Refinancing

Depending on the factors that were mentioned earlier in this article, refinancing might be a very good option for you. Here are some of the pros that might make you consider refinancing:

  • The main advantage when refinancing is that you could be saving money by reducing the interest rate, which will result in a lower monthly payment and a lower cost of the loan.
  • If you have equity in your home, you can take cash out, which can be used to pay other debts.
  • You have the option of shortening the loan repayment time, which will lower your interest costs. Make sure your mortgage terms don’t include a prepayment penalty before changing the loan repayment time.
  • You can change the mortgage type from adjustable-rate to fixed-rate and vice versa. Fixed-rate loans are advantageous to people who are looking for a fixed monthly payment for the duration of the loan. Adjustable-rate loans work better for people who are planning to move after a short period of time.

Cons of Refinancing

Of course, with pros, there usually are some cons, as well. And it’s equally as important to know what risks you’re exposing yourself to when planning to refinance:

  • The main disadvantage is that you may be losing money by paying fees and closing costs that can add up and actually cost more than what you’re saving by refinancing.
  • Not having good credit will lead to a higher interest rate, and that will increase the overall cost of your loan.
  • Getting approved for a new mortgage loan can prove to be difficult, as banks have become stricter with their requirements. Trying to get a loan with bad credit, or while not being able to justify your income will most likely get in the way of refinancing.
  • Changing your mortgage type or loan repayment time could result in paying more interest than with your original mortgage.

Ultimately, deciding whether to refinance your mortgage or not depends on each person’s situation. Refinancing can be the right choice for you and your family, but only if you take the time to do the research, shop around, and make sure you know all the advantages and risks.

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