Fiscal Considerations in Refinancing

Posted by Admin on February 17, 2016
Home Mortgage Info

Are you suffering from debt issues? The ability to refinance a home can certainly be helpful in the short term. But the big question remains is refinancing wise? There are instances where refinancing might not always be the best strategy.

If you already have a good mortgage rate and are able to keep up with the payments in a timely manner, you definitely want to thoroughly analyze whether the benefits outweigh the costs. For example, many folks are tempted to take out an adjustable rate mortgage that promises deep savings but ends up delivering the exact opposite. ARMs deliver short term savings, but at a very high risk.

The premise of an ARM is that for the first few years of the loan, you pay ultra low interest rates, with the rates set to float higher after that initial set time. In times of economic stability where banks are willing to offer loans, this scenario can be a great way to go. But should an economic downturn take place, you may be stuck with the loan because banks will not refinance. Therefor, if you are unable to refinance before the rates rise, you may end up an extremely high interest rate, more debt and, possibly, down the path to foreclosure.

Thankfully, the past several years’ people became aware of bad mortgage refinancing schemes. So, they have become a bit more cautious about any home mortgage refinance offers that come their way.

Caution is good, but there is another extreme a mortgage holder can choose that would not be much of a help; ignoring opportunities to refinancing to obtain better terms.

Lower interest rates can lead to:

  • Paying more towards the principal of the loan as opposed to paying mostly interest
  • Lower monthly payments
  • More cash per month to pay down debt

Without an optimal mortgage, it could prove difficult to maintain a budget that helps address issues surrounding debt and personal finances. There is no logical reason to maintain a mortgage with poor terms when there are options available.

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