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Five Smart Reasons Not to Refinance Your Mortgage |
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Written by Malik Perl
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One of the best ways to lower your current mortgage payment is to refinance with a smaller interest rate; a longer term; or both. Depending on your situation, a basic mortgage refinancing can save you hundreds of dollars every month in housing payments. Still there are times when even getting a lower payment still isn’t a smart move. When shouldn’t you consider refinancing your mortgage?
Here are 5 smart reasons you keep the loan you already have:
- When You Don’t Owe Enough: Sure, lowering your interest rate from 5.3% to 4.5 percent can save you money, but if you only owe a few years on your mortgage, the savings may be minimal compared to the costs of the refinancing. Remember, when you refinance a mortgage, you are actually applying for a putting into place a whole new loan; and that loan will be subject to all sorts of fees and costs from the bank; the local tax authority; the state and more. In most cases, closing costs on a new loan range from 3-10% of the total loan amount. Check to be certain that you will have enough money over the life of your new loan to warrant the trouble of refinancing.
- When There Aren’t Enough Benefits: There are a lot of benefits to refinancing your home. You can usually expect lower payments; can get a few extra tax deductions in the coming year or so and may even lack away with some extra cash to remodel or use for some other purpose. But what if you will not be bale to take advantage of these sorts of benefits? There are situations where you simply do not have enough time left on your mortgage to warrant refinancing. In the end it will cost you more money than you can possibly save.
- When The Hassle Isn’t Worth the Gain: Refinancing a loan is hard work. It takes time and patience. In order to qualify for the new mortgage you will have to pull out all of your financial record for the past 3-5 years; submit an application; have your house appraised; explain why you made your Visa payment late in 1986 and more! It is harder than ever today (and takes more paperwork than ever before) to get any type of mortgage – even a refinanced one. Now, let’s say that you have 10 years left on your mortgage and your total savings will be about $100 a month. You need to decide if paying those closing costs and going through the hassle of obtaining a new loan really is worth it.
- When There Isn’t Enough Time: In most cases, a loan with less than 15 years left in its term should be left alone. There are expectations, however. Say, for instance that you have 13 years left on a mortgage carrying an 8% interest rate and you can refinance the balance for 10 years at 4.8%. You could save thousands of dollars in interest and cut three years off of your mortgage. Now, keep making the same payment you have been making and that 13 years mortgage may end up being just six or seven years in length. Now, that’s when mortgage refinancing works. But, if you already hold a 6% interest rate and the best deal you can negotiate is for 5.3% the odds are good the benefits of taking on the new loan will not outweigh the drawbacks – and if they do it won’t be for much.
- When Your Current Adjustable Rate Is Actually Lower: Adjustable rate loans have been given a bad rap these days and for good reason. Too many people found themselves unable to pay the higher rate when their loans reset during the housing crisis. But, that does not mean that all ARMS are bad. There are some homeowners who right now are benefiting form ultra-low interest rates because of them. If your ARM rate is till lower than the average fixed rate loan right now, keep what you have and refinance later. Sure, you may end up paying a bit more with a bit higher rate later, but the amount your are saving right now can be substantial and if rates continue to remain low, you could benefit for quite awhile.
If, however, you do not have a solid credit rating and are not sure you will qualify on your own for a refinance at a later date, take advantage of some of the government programs right now that is easing the restrictions on refinancing for some.
Knowing when to refinance your mortgage is important if you want to truly come out ahead by lowering your interest rate; you’re monthly payments and your overall loan term. Be sure to check out these five reasons why you shouldn’t refinance and if you still think it will benefit you financially than forge ahead. |
