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.
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