Mortgage rates have been at their lowest rates in recent years, it might be time to refinance your home.
If you would like to lower your mortgage costs or tap some of the equity you built up over the years, there are many good reasons to consider starting the refinance process.
It is not always the right move however, here are 5 reasons why refinancing your mortgage could be a terrible idea.
1. Incorrectly Focusing on the Immediate Savings
If the new home loan doesn’t really save you money, then refinancing to score that lower interest rate and monthly mortgage payment may not be the smartest choice.
If you are thinking about moving soon, a refinance could save you perhaps $100 a month. But if you have to pay closing costs of $2000, you will need to stay in the home for 20 months or more if you want to avoid losing those savings.
Another thing is if you’ve been paying into your mortgage for 10 years and then refinance into a new loan, you could get stuck with 10 extra years of interest charges.
2. Seeking Relief from Credit Card Debt
If you are looking to wipe out your credit card balances, you will need to begin a cash-out refinance. What happens is you borrow more than you owe on your home and take out the extra in cash. This cash then goes to the card issuer.
You will be left with a larger mortgage and a larger monthly payment. You would also have to toe the line to make sure you don’t end up drowning in credit card debt, putting your house at risk.
3. You’re Eager to Renovate
A cash-out refinance can free up the equity you need to pay for the remodeling project of your dreams, like getting those granite counter tops you’ve always wanted for your kitchen or redoing the tiles in your bathroom.
Before you borrow the money for home improvement, make sure to avoid projects that do not add value to your home.
That would simply result in you taking on more debt. Ensure that you will make a good return on your investment before moving forward with the remodeling.
4. Playing the Stock Market
The best way to build long-term wealth is probably by investing in stocks, bonds and other assets. it is very risky however to invest with equity based on your home in a cash-out refinance.
It is hardly worth it to refinance your mortgage to earn modest savings on investments as safe as certificates of deposit. Riskier investments carry considerably higher risks, nobody wants to lose their money and be left with a higher mortgage.
If you refinance solely for the purpose of investing, it pays to be extra cautious. Consider automated investing services that will automatically adjust your portfolio to withstand market fluctuations.
5. You want a “No-cost” Refi
There’s no such thing as a free lunch when it comes to mortgages. Every mortgage comes with fees and other costs that will have to be paid. When a lender claims to offer a “no-cost” refinance, you would be wise to be skeptical.
These loans conceal the closing costs, and may be rolled into your loan amount or passed into you in the form of a higher interest rate.
These 5 reasons to hold off refinancing your mortgage can save you a lot of money. For any other financial advice, give us a call we are ready to assist you.
