4 Mistakes People Make When Refinancing Their Home
When you decide to refinance your home, it’s vital that you go into it for the right reasons. A lot of people realize too late that they may not have made the best decisions during the process. In reality, refinancing your home isn’t always the best choice for everyone. Even if you see that mortgage rates are low and you want to snag a good deal, there are risks involved.
If you’re looking into refinancing your home, it’s important to look out for the following common mistakes.
Refinancing For Debt Consolidation
Homeowners may think that paying off a high-interest loan with a low-interest mortgage is a smart tactic, but there are a few ways it can go very wrong.
First of all, when you do so, you are transferring credit card debts into a new debt that is intertwined with your house.
If you’re not able to make your payments on time, you can lose your home. Dealing with a foreclosure is much more serious than the typical consequences of not making a credit card debt on time. If you already find yourself in over your head in credit card debt, the solution isn’t creating even more debts for yourself that you’ll have trouble repaying.
Refinancing To Buy A New House
While this may seem logical in theory, it’s not always the best idea. You’ll need to look at the numbers carefully to determine whether you’ll actually be saving a lot of money in the long run by refinancing to save for a new home.
Before you assume that you’ll be saving money by making lower monthly payments, you need to carefully calculate how much you’ll be saving in reality. The truth is, after looking closely at your numbers, you may not be saving much money at all.
Refinancing To Have a Fix Rate Loan
If you currently have an ARM, it may seem reasonable to refinance so that you have a fixed-rate loan, especially if you plan on staying in your current home for a long time down the road. But before you assume a fixed rate is a better deal for your family, it’s critical that you look carefully at the frequency of your loan adjustments, and above all, your caps on loan adjustments.
It’s critical that you have the data laid out before you rather than diving into a new financial commitment blindly. A fixed-rate loan may not be the most favorable solution!
Refinancing For Cash
Some people refinance their home to invest the cash. For some people, this is a great idea. For others who have less self-discipline, it can be a dangerous move. It’s easy to find yourself with cash and squander it away. Therefore, only go this route if you can be sure you have the self-control.