A lot of people are interested in refinancing their mortgages or home loans. The reason in most cases is that people are convinced that they are getting better terms from the banks. In some cases, this is true, but not in all cases. Learn about refinancing in general, here.
To be sure where your stand, you must do some research and find out what is best for you. Not all situations are excellent despite the banks trying to convince you that the moves you do are great and will have no negative impact on you.
In this article, we’re talking some more about the pros and cons of refinancing your mortgage plan. Follow up if you want to know in more detail why it may be good, but why it may be disastrous at the same time!
Lowering the monthly rate
All mortgages or home loans are different. The terms are rarely the same because everything’s a matter of internal agreement between the borrower and the lender.
You can opt for a loan that will last 20 years and get an interest rate that you can bear over the years. At some point, you may reach a point to refinance your loan because the agreement allows it. You can lower the monthly rate, and with it spend the month with fewer expenses. You can invest the money you save on this into something else that might be a priority at the moment.
Shortening the length of the loan
One of the best ways to deal with a loan is to end it before the agreed time. This is rarely the case, but if you have the chance for something like this, be sure that this is a smart move.
Let’s say you got promoted at the job, and you suddenly make more money. Unless you have other priorities, you can invest this money into the loan you have and refinance it. Make it shorter. Pay a higher monthly rate, and get better terms.
This will allow you to end the loan sooner than expected. If you had 10 years left, you can now have 5 years left, and be sure that when your children reach the age of going to college, you’ll be able to pay for their education without having the burden of the old loan on your back.
Losing more money over time
In many cases, you’ll see how the bank convinces you to refinance your loan and get a lower monthly rate. It’s very strange that banks offer something beneficial for you, and not for them, right? You know that there’s some catch here. There indeed is. See how banks profit here: https://www.thebalance.com/how-banks-make-money-315473.
What they’re trying to do is trick you into expanding the loan. If you have, let’s say 7 years left, they’re going to tell you that you’re extending the loan to 10 years, but you’ll get a lower monthly rate. What they are not telling you is that you’re going to need to pay extra three years in interest and lose way more money in the end. Think about this and is it worth doing.
Creating a bigger debt
Another common mistake people do is to get a loan over the loan. When you have a loan for a home, and you need to pay your child’s tuition for college, you opt for refinancing your existing mortgage and get another one on top of it.
You may have no choice at the moment, but this is draining your home budget to the maximum. You end up paying two loans, and you raise the interest rates, just so you can do something else. This is not the smartest move, and you should make other choices instead. Like get another job, or ask your children to work and study at the same time.
Some of the biggest advantages of this can also mean the biggest disadvantages. This is why we suggest hiring a professional for the job. Someone that will act as a guide to refinancing your loan. If you can find such a person for a reasonable amount, that is your best option.
If not, you’ll need to do everything alone. You’ll need to spend some time researching and learning about the details of banking, financing, loans, mortgages, and everything that goes with it. This may be a confusing subject with tons of terms that you don’t understand. Some of them are crucial for you.
The most important issue in this subject is to know what you want to do with your loan. Be aware of the downsides. That’s why we wrote all these points above – for you to understand that there are good things and some bad things in the world of refinancing your mortgage.