Home Refinance Advantages and Risks
- Date: 2010-10-23 - Word Count: 616
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Refinancing your home needs careful and thorough considerations because it is essential for you to understand the full extent of home refinance. Sometimes it can be quite easy to be blind-sided by all the good things that come from refinancing your home and turn a blind eye to the risks. It may always be smarter for you to weigh in every single aspect of home refinance before committing to any home refinancing program. Therefore you might want to make a list of all the advantages and risks of refinancing your home and base your decision upon analyzing the pros and the cons.
The most obvious benefit of home refinancing is the relatively lower interest rate. Generally home refinancing would work to your advantage if you could get an interest rate that is at least 2% lower than your original interest rate. For instance, if the interest rate for your first mortgage is 4% adjustable rate it can be considered a good deal if you could lower your interest rate to 2% preferably fixed rate. A 2% reduction of interest might not seem like much but in the long run you might actually be saving thousands of dollars on interest alone.
Another reason you might want to consider to refinance mortgage loans is to limit the risks associated with your mortgage especially if you are on an adjustable-rate mortgage. It might be a good idea for you to convert it to a lower fixed rate mortgage. This is because you will be able to enjoy a lower interest rate for the entire loan life without ever having to worry about the rate increasing as per market rate.
One advantage of home refinancing is that it gives you the option to pay off your loan sooner without having to pay a penalty. Perhaps some time during the life of your first mortgage you came upon a significant increase of income and would like to finish paying off your loan as soon as you can. However, many mortgage loans have a pre-payment penalty that allows your creditor to charge you for making an early payment. By refinancing your home, you may be able to avoid such penalty and you may opt for a shorter loan term to finish paying it all off sooner.
It is widely known that home refinancing is not the one solution for all financial situations. Sometimes it carries far more risks than benefits. For example, if you are not planning on staying in your home for a long time it may not be advisable for you to refinance home mortgage. This is because the first few months' payments will be more towards paying the cost of refinancing instead of paying off the interest or even the principal amount. Hence you will end up losing more money in refinancing your mortgage and moving out to a new place at the same time.
Extending the term of your loan may also be one risky move in home refinancing. For example, if you extend your 15 year loan to a 30 year refinance loan, you might end up paying more over the course of the loan. This is due to the fact that although the interest risk may be considerably lower, you will still have to pay the same rate throughout the entire life of your loan and end up paying more on the interest than you would on your original 15 year loan.
It is always advisable for you to weigh the advantages and disadvantages of home refinancing before actually committing to a home refinance program. It might not do you much good if you keep focusing on the appealing lower interest rate but neglect to factor in other risks into your consideration.
The most obvious benefit of home refinancing is the relatively lower interest rate. Generally home refinancing would work to your advantage if you could get an interest rate that is at least 2% lower than your original interest rate. For instance, if the interest rate for your first mortgage is 4% adjustable rate it can be considered a good deal if you could lower your interest rate to 2% preferably fixed rate. A 2% reduction of interest might not seem like much but in the long run you might actually be saving thousands of dollars on interest alone.
Another reason you might want to consider to refinance mortgage loans is to limit the risks associated with your mortgage especially if you are on an adjustable-rate mortgage. It might be a good idea for you to convert it to a lower fixed rate mortgage. This is because you will be able to enjoy a lower interest rate for the entire loan life without ever having to worry about the rate increasing as per market rate.
One advantage of home refinancing is that it gives you the option to pay off your loan sooner without having to pay a penalty. Perhaps some time during the life of your first mortgage you came upon a significant increase of income and would like to finish paying off your loan as soon as you can. However, many mortgage loans have a pre-payment penalty that allows your creditor to charge you for making an early payment. By refinancing your home, you may be able to avoid such penalty and you may opt for a shorter loan term to finish paying it all off sooner.
It is widely known that home refinancing is not the one solution for all financial situations. Sometimes it carries far more risks than benefits. For example, if you are not planning on staying in your home for a long time it may not be advisable for you to refinance home mortgage. This is because the first few months' payments will be more towards paying the cost of refinancing instead of paying off the interest or even the principal amount. Hence you will end up losing more money in refinancing your mortgage and moving out to a new place at the same time.
Extending the term of your loan may also be one risky move in home refinancing. For example, if you extend your 15 year loan to a 30 year refinance loan, you might end up paying more over the course of the loan. This is due to the fact that although the interest risk may be considerably lower, you will still have to pay the same rate throughout the entire life of your loan and end up paying more on the interest than you would on your original 15 year loan.
It is always advisable for you to weigh the advantages and disadvantages of home refinancing before actually committing to a home refinance program. It might not do you much good if you keep focusing on the appealing lower interest rate but neglect to factor in other risks into your consideration.
refinance refinance mortgage loans refinance home mortgagen
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