People needing financial assistance have a vast variety of tools available to them — tools which have undergone a revolution in the last twenty years. When times were simpler, most people only needed a few conventional personal and business loans. But recently, the cost of living and the desire for modern conveniences and electronic gadgets have increased faster than the growth of wages, making life itself more difficult for working families.
Seizing an opportunity, the financial industry has invented new solutions for consumers, by offering a wider variety of creative financial assistance options. Refinancing a mortgage loan is one of the new innovations. Refinancing a mortgage is basically getting a new loan that replaces your old mortgage. There are two reasons for refinancing your mortgage loan.
- If interest rates have fallen since you took out your original mortgage, you may be able to save money and reduce your monthly payments by refinancing. There is a cost involved in getting a new loan, so you must calculate all the costs and make sure it is worth it.
- If you have paid off a lot of the mortgage or if the value of the property has increased, you have extra equity in the property that you can borrow against. From this new loan, you pay off your existing mortgage and have the rest of the loan to use. This can help your financial situation, if your example, you are paying a lot of credit card debt at a much higher interest rate than the mortgage rate.
Risks and Disadvantages of Refinancing Mortgage Loan
Desperate homeowners have turned to refinancing their mortgage loan in record numbers and the rate is steadily increasing. However, it has turned out to be a trap for many in the economic downturn of the last couple of years and the housing market bubble burst. It is essential that you are aware of the risks and disadvantages before you consider refinancing your mortgage.
- You will incur a major setback in path to owning your own home. At the beginning of a loan, the payments primarily go to paying interest with a very small amount going towards building up you equity. e.g. the bank is making most of the money from your payments and you are not increasing your investment in your home very much.
- You face a greater risk of losing your home if you can’t meet the monthly payments. You will have lost forever the cushion of equity you previously built up. Home foreclosures are on the rise in the current terrible economic climate.
- You will pay a larger total amount to own your home, over the life of the mortgage because the the amount of the loan may be larger, the term longer and thus the interest costs much greater.
- There is always a cost of refinancing — points — so you pay even more of your hard-earned money to the bank or mortgage lending company.
But If You MUST Refinance …
As you shop around for a lender who offers you favorable terms for the refinancing of a mortgage loan, you must be well aware of some critical aspects which will affect your financial future. You will need to have all of the relevant information as you begin the process, since there are many details you will have to know about your current financial situation in order to fill out the application.
The most important pieces of information which you will need to fill out this application include:
- Your current monthly payment
- Interest rate
- Remaining balance of your mortgage
- Remaining years before your mortgage would be paid off
- New interest rate after refinancing
- Number of years to repay the new refinanced mortgage loan.
Good luck and God bless.
