With low interest rates, many homeowners in Milwaukee opted for mortgage refinancing. But is this always a good choice?
With interest rates at a record low, many homeowners decided for mortgage refinancing, hoping to snag some of those low percentages. However, not all reasons for this are good, and some may get you into more trouble than you’ve expected. Mortgage refinancing seems like a good choice when the interest rates are dropping, but should you do it at any cost? Stop for a second and think about what the real reason for mortgage refinancing is for you. Here are some of the bad ones.
To Consolidate Debt
Sometimes, it seems like a good idea to take one credit so you can pay off the first one. This is known as debt consolidation. However, if it goes wrong, you’re going to be in a big financial trouble. Since your home becomes a collateral, one wrong step can cost you greatly. Not only will inability to pay off the new debt damage your credit score, but now you’re facing the possibility of foreclosure, as well, and this is a risk hardly worth taking. Not to mention how many people will end up feeling financially stable before time, causing them to spend more money once again.
To Reduce Monthly Payments
The main reason why people choose to refinance their mortgage is so they could get lower monthly payments. This makes sense, however, think about the additional expenses. This includes closing costs and fees, and also you’ll pay more in interest if the loan lasts for a while. In the long run, this may not be as smart decision as it seems.
To Buy another Property
We all know how difficult it can be to save for a new home. However, when considering mortgage refinancing, you have to be very careful. One wrong financial decision can cost you greatly. Let’s say it will take you a few years to recoup all the expenses of a refinance, but you plan to move in a year or two. If this is the case, you’ll only lose money instead of saving it, since now you’ll have a huge time gap that will require some expenses.
To Take a Longer-Term Loan
If you’re considering mortgage refinancing so you can take a longer-term loan, be careful. Calculate how much your debt will be once all is set and done. If you have just a few years left on your loan, but decide to stretch that out into a new 30-year fixed loan, you’ll end up losing money instead of gaining because now you’ll have more to pay on the interest rate in the long run. Not to mention how you’ll end up stuck on decades more of making mortgage payments!
To Change the Type of Mortgage
Switching from an ARM to the fixed-rate mortgage may be a great move for many, especially if you plan on staying inside the house for many more years. However, if you’re just afraid of what the future may hold, this is probably not the best move. Terms of an ARM may not predict mortgage refinancing, which can get you into trouble. Make sure you know to which index the ARM is tied, how often it adjusts and what are the caps. While there is a chance a fixed-rate mortgage is better, make sure you’ve checked everything out beforehand.
To Save Money for Investing
This is almost never a good idea. The cash is very easy to spend, and chances are you won’t be able to save it for long enough. Sure, if you’re disciplined it may work, especially if you plan on investing in an emergency fund. However, you may end up paying a mortgage higher than you’d gain a month, so you have to be smart. Understand both the risks and the gains before you make such a big decision.
To Get a No-Cost Refinance
This is one of the biggest lies when it comes to mortgage refinancing. No matter what someone tells you, there is no free mortgage. In one way or another, you’ll have to pay for closing costs and refinancing fees. If you’re not paying up front, you’ll pay as a part of your monthly payments. Don’t accept the deal just because it looks like you’re saving on closing costs. Calculate everything before making a final decision.
What Can I Do if Refinancing Isn’t for Me?
If you’ve realized you’re considering mortgage refinancing for all the wrong reasons, you should know there are still ways to take advantage of low interest rates while they last. If you sell your house to a reliable real estate investor, such as Sparks Property Investors LLC, you can get the money you need for your down payment, then take a new, low-cost mortgage! And don’t worry – we’re buying houses that you still owe some money on.
There are a few more advantages when working with a real estate investor. First off, we’ll pay in cash, so you’ll get your money as soon as possible, without messing around with banks. We buy houses as-is, even if they aren’t in perfect condition. You don’t have to worry about repairs and upgrades. Also, we can close the sale much faster than traditional buyers – sometimes as fast as seven days. This makes us a great candidate if you’re worried about foreclosure or if you planned on moving out fast.