Refinancing your mortgage can be a smart way to lower your monthly expenses and provide additional cash for your business. Lending institutions continue to offer favorable interest rates, and this might be a good time to take advantage of looser credit restrictions to utilize this money-saving tactic. But before you make the move to refinance your property, take a look at both the positives and negatives of this popular financial move.
The benefits of a mortgage refinance can be impressive, such as:
· Cheaper loan rates – Lending institutions are again actively seeking loan customers, with attractive rates that make refinancing a great deal for many property owners.
· Shorter loan periods – You may be interested in getting a lower rate for a shorter term to allow you to pay off your property more quickly. However, you should consider the tax consequences of losing your interest rate deduction.
· Changing from an adjustable rate to a fixed rate – If you purchased your property with an adjustable rate mortgage with interest rates are now rising, a refinance is a good opportunity to change to a lower, fixed rate loan.
Disadvantages of Refinancing Your Loan
Along with the upside, property owners should also consider the downside of initiating a mortgage refinance, which can cost a significant amount in time, energy and money:
· Savings could be minimal – If your present mortgage was negotiated two years ago or less, the savings of refinancing might not be worth the additional trouble. Mortgage rates have dipped less than 1.5 percent over that period.
· You’ll have to stay put – In order to reap the rewards of the refinance, you’ll have to stay in your current home. If you expect to see significant expansion in the next few years, you may not stay long enough to see the savings.
· Prepayment penalties can cut into the savings – If your present mortgage penalizes you for paying it off early, you will lose any advantage in savings for the lower interest rate.
· Loan fees can cut into any savings – Loan origination fees, appraisal fees or other costs can make any savings on interest rates moot. Look carefully at all fees requires for refinancing your property before proceeding.
The decision whether to refinance or not depends on many factors that can vary from region to region. Spend time on research before beginning the process.