Mortgage Refinancing: Best Kept Secret
Jenny Lane
There are countless other reasons why people go for mortgage refinancing when buying a new home. However, it should be noted that not everyone benefits from mortgage refinancing. For homeowners with second mortgages, mortgage refinancing may backfire. The same goes for those people with a lot of debt or those having trouble paying bills on time. By going for mortgage refinancing, they might end up paying more than when they stick to the loan they already got.
Things to keep in mind when Mortgage Refinancing your home
There are a few things to keep in mind when you decide to go for a mortgage refinancing loan. In mortgage refinancing, the first thing you need to do is ask yourself this question: “Does my property have enough equity for mortgage refinancing?” Mortgage refinancing a home will not help anything if the equity has been steadily depleting.
Let’s say a homeowner borrows 90 per cent of value from his home to finance another loan. At that rate, the homeowner will be running serious risk of depleting his home’s total equity by going for another loan through mortgage refinancing. This is especially true for mortgage refinancing when closing costs start rolling in.
A second thing that affects mortgage refinancing is the borrower’s loan qualifications and credit line. A positive credit history would spell good news for mortgage refinancing. However, if credit is bad or if the relationship between debt and income is skewed, then mortgage refinancing is not the right option.
Maintaining a positive balance between income and debt levels is strenuous for most people. At the rate with which home equity loans and credit lines are selling, it’s easy to see that a lot of homeowners have succumbed to second lines in order to cover their bills. Some borrowers have taken advantage of loopholes in credit checks to sell their houses for more than what they’re worth. Mortgage refinancing won’t come easy for these types of people.
Customers who are interested in mortgage refinancing also receive pre-qualification tests and credit checks like all other customers. Customers with a few late payments or high credit card balances will have trouble finding lenders who are willing to give them mortgage refinancing loans. However, these points won’t really exclude anyone from mortgage refinancing entirely. It’s just that rates might just be a little bit too high to give any room for savings or rates are not low enough to make mortgage refinancing worthwhile.
Mortgage refinancing may also turn sour for buyers with good credit. Private mortgage insurance (PMI) and long loan terms can make mortgage refinancing a bad deal. Private mortgage insurances usually apply when a homeowner borrows more than 80 per cent of a home’s value. This protects the lender in case of a default or a foreclosure. Before deciding on mortgage refinancing, take the PMI into account and see if you’re willing to pay that much.
Also, mortgage refinancing may add 30 more years on your 30-year first mortgage. Yes, the monthly payment will be less but are you really willing to pay for your loan for 30 years more instead of 10?
About the Author: Jenny Lane is a banking specialist who writes on related financing and banking industry topics. Find out more about the latest in banking industry at http://bankingtrends.com
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