Whether you want some extra cash for home improvements or want to reduce your monthly payments, the answer to the question "Should I refinance my mortgage?" isn't always "Yes." Read on to learn why.
If you're in financial trouble, want to upgrade your house, or are just looking to save a little extra cash each month, you probably have asked the question of, "Should I refinance my mortgage?"
Refinancing your home might seem like a good idea to fund a home improvement project or to possibly ward off foreclosure. However, refinancing isn’t always the best move to make - especially if you’re financially struggling with your monthly personal spending plan. Before you pay any refinancing application fees, be sure to do your homework.
When to Avoid Refinancing
Refinancing might be a really bad idea, especially if you have paid a good chunk of your mortgage, warns both Bankrate.com and the trade journal “Medical Economics." Also, even seasoned professionals have fallen for refinancing scams that really did nothing more than botch their existing mortgages. Unless you have a truly compelling reason to refinance, you might be better off waiting or not doing it at all. You could end up paying much more interest over the life of your loan, especially if you refinance in the later years of your existing mortgage.
First Ask Your Current Lender for Assistance
You should first ask your current lender to refinance the mortgage, advises “Medical Economics." Even if you’re struggling financially, most lenders would rather keep your business than see your home loan go elsewhere. You can also talk about rebates or breaks on appraisal and closing fees, especially if you’ve been making your payments on time and have a good overall credit standing.
Know Exactly What You Want
You must know what you want to effectively refinance your mortgage, according to “Medical Economics." Before approaching new lenders, decide how many years you want to pay your mortgage, if you want cash out, and what kind of monthly payments you’re comfortable making.
Compare All Costs Accurately
You must ensure you compare interest rates with points accurately, warns Consumers Union. A 9 percent interest rate with two points is not equal to a 9 percent interest rate with zero points. Also, keep in mind that “no cost" refinancing isn’t necessarily a true money saver; you could still potentially end up paying more interest over the life of the loan than you would have paid with application and closing fees.
Insurance, Taxes, and Escrow Considerations
Don’t put your tax payments or homeowners insurance premiums into escrow during the refinancing process, advises “Medical Economics." You could end up losing as much as 1 percent of those funds unnecessarily and should avoid this practice unless you’re really undisciplined about your financial affairs.
Changing Your Mind
If you didn't really do your research into the question of, "Should I refinance my mortgage?" before approaching a lender and signing a contract, you still might be able to change your mind, according to Consumers Union.
Most refinancing deals allow three business days from the closing date for you to change your mind. The lender then has 20 days to return any monies owed to you.