Pros & Cons of Refinancing

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by: Samantha Taylor1
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Date: Fri, 26 Feb 2010 Time: 4:45 AM
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Mortgage refinancing has a number of benefits to offer. One of the greatest benefits of refinancing is that you can obtain a refinance
loan with more favorable terms and conditions as compared to your existing mortgage. However, many of you make certain mistakes while taking out a refinance loan. You should avoid these mistakes in order to maximize the benefits of refinancing.
4 Benefits of mortgage refinancing

The benefits of mortgage refinancing are discussed in the following lines.
Affordable monthly mortgage payments: You can take out a refinance loan with relatively lower interest rates as compared to your existing home loan. It will make your monthlymortgage payments more affordable.

Consolidate first and second mortgages into one: Refinancing helps to consolidate your first and second mortgages into one single home loan thus making it more manageable for you.

Change mortgage loan programs: You can change your mortgage loan programs with the help mortgage refinance. By taking out a refinance loan, you can replace your ARM (Adjustable Rate Mortgage) to an FRM (Fixed rate Mortgage). Thus, you can lock in a comparatively low interest rate for the entire loan term.

Pay off other bills/debts: Refinancing also helps you to pay off other debts. In order to do this, you’ll have to opt for cash-out mortgage refinancing, wherein you take out a mortgage more than the unpaid balance on your home loan. You utilize the additional amount to repay your other debts, such as, credit card bills.

2 Mistakes to avoid in mortgage refinancing

As stated earlier, you should avoid committing mistakes while taking out a mortgage loan. Go though the following lines to know about 2 common mistakes in mortgage refinancing and what you should do in order to avoid them.
Opting for mortgage refinance quite often: Refinancing helps you to replace a high interest mortgage with a comparatively low interest home loan. However, you shouldn’t do it quite often as you need to pay high closing costs every time you refinance your existing mortgage/mortgages.

Not locking in the interest rate: Many of you fail to lock-in the favorable interest rate and it increases by the time the loan gets processed. Therefore, you should lock-in the rate as soon as you find a favorable one.

Apart from being aware of the above mistakes, make sure you go through the terms and conditions carefully before signing the dotted line.

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