When Refinancing Isn’t The Right Choice
Refinancing can be a powerful financial tool for homeowners. Many people consider home refinancing in order to lower their monthly payments or to take advantage of lower interest rates. They might also refinance it to cash out on the equity to pay for home repairs or invest in a second property.
As good as that all sounds, it doesn’t mean that mortgage refinancing is always right for every homeowner in every situation. It’s important to know what is involved with a refinancing deal and how it’s going to impact you financially. That’s why many people turn to a real estate lawyer when considering a refinancing deal.
A real estate attorney in The Bronx can look over the proposal, help make you aware of costs and taxes that you may have overlooked, and help you determine whether or not the refinance is in your best interest. Sometimes, it’s not.
But before we get into that, let’s understand what refinancing is and how it works.
What is Refinancing?
Mortgage refinancing involves replacing your existing mortgage with a new one. As you can imagine, the purpose of refinancing is to get better terms or to change the type of your loan. The new mortgage may have better terms such as:
- Lower interest rates
- Easy repayment plans
- Debt consolidation
- Cash out option
- Manageable loan terms
These terms make it easy for you to repay your mortgage. It might also help you save more money.
How Does Refinancing Work?
When you refinance, the new mortgage will pay off your current loan. In other words, your existing mortgage is replaced. For example, if your original loan was from Bank A and your mortgage refinancing lender is Bank B, Bank B will pay off your loan from Bank A with your new mortgage. You will continue to repay your loan to the Bank B. In short, your installments will go only to Bank B, not both banks.
Why Home Refinancing Might Not Be Right for You
As mentioned before, refinancing your mortgage may not always work in your favor. Here are a few common situations when it may not be right for you.
#1. When interest rates are higher.
Interest rates are a major factor when it comes to determining your monthly payment. The higher the interest rate, the higher your repayment amount is going to be. Even a fraction of a percent can make a huge difference over the lifetime of your loan. If you were fortunate enough to lock in a low-interest rate with your original loan, it’s unlikely that you’ll benefit from a home refinancing deal at a higher interest rate.
#2. When you’ll end up paying more than you save.
Interest rates aren’t the only thing that can end up costing you more when you come to the table to sign on your loan. You’ll likely have closing costs, processing fees, and paying on points that can make home refinancing expensive.
In some cases, it can actually cost you more to refinance your home than you’ll save with lower payments. Make sure you know exactly what fees are involved in the process and weigh them against the potential savings.
#3. When you have to pay private mortgage insurance.
When a home loan is close to the value of the home, a lot of lenders are going to require that you take out private mortgage insurance. This will be added to your total monthly payment.
Private mortgage insurance (PMI) gives the lender more incentive to give you a larger loan without a lot of equity in the home. It can balloon your monthly payment quickly and put it out of your budget. If mortgage refinancing is going to result in PMI, carefully consider if it’s worth it.
4. When you can’t qualify for the new loan.
Qualifying for home refinancing can be difficult. It could actually be more difficult to qualify for a refinancing deal than it was to qualify for the original loan. Lenders are going to be especially picky about your credit rating.
Your credit rating may have dropped since you purchased your home, but even if it’s the same as it was, it might not be enough to qualify for the new loan. It’s important to shop around and make sure that you meet the minimum qualifications. If you don’t, then refinancing isn’t going to work for you.
5. When you are close to paying off the home.
Mortgage refinancing means you’ll be making payments on it for longer. If you are close to paying off your home, it might be worth it to just finish out the original loan. You can always take out a loan on your equity if you are in need of a cash infusion, and those loans typically have a much shorter repayment period.
Do You Know If Mortgage Refinancing Is Right for You?
It can be difficult to sort through the terms of a refinancing deal to determine whether or not it’s the right move for you. That’s why it’s important to speak to a real estate lawyer before you sign anything. A real estate attorney in The Bronx can examine the document involved in the refinancing loan and make sure that the loan is in your best interest and make you aware of any potential pitfalls.
Talk to A Reliable Real Estate Attorney in The Bronx Now
Refinancing your mortgage can be an excellent way to reduce your interest burden. But before you refinance, make sure you are getting the best possible terms. What is the point of mortgage refinancing if the terms aren’t better? So, keep in mind these situations where refinancing won’t make sense and take your next steps accordingly. Of course, seek legal advice whenever needed.
If you’d like to speak to a real estate attorney in The Bronx about your financing deal, get in touch with The Law Offices of Diron Rutty, LLC today. You can give us a call or contact us through our website to schedule your free consultation today.