Tuesday, March 26, 2019

What is it? What are the pros and cons of doing one?


A mortgage is a loan that can be obtained through a bank, private lenders or through credit unions. The unique factor is that they are based on real estate so, in order to obtain a mortgage, you need to be a home owner. While deciding terms and condition can be pretty easy, because of the flexibility they provide, sometimes a need for replacement may arise. This replacement of the current mortgage with a new loan is what you call Mortgage Refinancing.

The reason why most people opt for mortgage refinancing is because it can help lower the existing rate or payment through extending the term of the loan. Additionally, it also gives people the opportunity to pay off other debts or embark upon a journey of home renovation and improvement to increase its overall value.

The pros of mortgage refinance:

It has lowers rates of interests

Mortgage refinance allow you to obtain a loan with a much lower rate of interest than the previous. For those who find that they are struggling, such a short-term solution will help keep them within their house for a longer period of time all the while ensuring that they can keep up with the decreased levels of payment.

It allows for fixed rates to be set

Majority of the times, loans are based on an adjustable rate of interest that is lower in the initial phases of the mortgage but tend to spike as time progresses due to reevaluation after taking into consideration certain benchmark indexes like LIBOR.

For those who seek some stability, and plan on staying within their house for a longer period of time, having a fixed rate of interest is a more reliable option. It will help them create a viable plan that they can live by to ensure a quality of life as well as upkeep with debts.

Cash-Out Equity

Another option that you can explore is cashing out your equity. This would allow you to borrow more than what your house is worth. You can use this money to pay off your debts and use the additional money for things like home development.

The cons of mortgage refinance:

New application process

In order to apply for a new loan, you will have to go through the same process of application as the first time. However, this time it is make much more difficult due to the fact that if there is any discrepancies in your income or credit score since your last mortgage, you might not be able to secure a new one.

There are added costs

One of the major hardships that people experience is the increased costs of mortgage refinancing. Closing costs, application fees, credit report fees and the like can often prove to be hefty considering the reason you are trying to get a second mortgage is to reduce financial pressures.

Home appraisal is unpredictable

Home appraises is what determines the value of your home, based on the real estate market. What your house is valued at can often be the decisive factor for whether you can make use of mortgage refinance or not. Home equity may increase or, just as likely, decrease based on changes in the market. You may find that the value of your property has declined which will, ultimately, discourage a lender from giving you a mortgage.


Author: verified_user