If you have a mortgage, you know the difficulty of the loan application process. The idea of going through that all over again just to pay for a home remodel, medical bill or other endeavor doesn’t seem tempting. However, emergencies may arise that require you to request funding from a financial institution. One way around applying for a new loan is to refinance the mortgage you already have. But before you jump aboard this idea, you should first go over the pros and cons. You can find the list of the good and the bad about refinance loans to see if it’s right for you.
The Pros of Refinancing Your Mortgage
There are different reasons why people decide to refinance their mortgage. One of the top is to lower their monthly payments for their house note. If you do it at the right time, you can get a lower interest rate. For instance, today, you may be able to find a lower interest rate than what you initially had with your introductory rate. Do the math to see if it’s right for your pockets.
In some cases, refinancing your mortgage can also help to shorten the length of your loan. So you could go from a 30-year term to a 15-year. Others choose to lengthen the loan, further lowering the monthly rates (15-year to 30-year).
Refinancing your loan can be a great thing if you feel your current terms aren’t manageable. You can shop around with different lenders who may be willing to refinance the loan for you. So you’re not stuck with the first financial institution you took out a mortgage with.
Ultimately, when you refinance your mortgage, you have extra money to spend. This can be used to reroof your home, make major renovations, go on a trip to Europe or fund your children’s education. There’s no penalty for using the extra money for whatever you want. This is why a lot of people take this route when they need extra money in the bank. Just make sure to keep track of all your finances using the banking products available at Deluxe.
What Are the Downsides of Refinancing Your Mortgage?
Depending on where you get your refinance loan and the time of year, you may end up with terms worse than what you already have. For instance, your new loan payments may offset any savings you’ve had up until then. The fees associated with loans can add up, making it too expensive to endure. The federal reserve can charge fees anywhere between $1,900 to $3,650, minus any origination fees you have to pay.
Then not everyone is qualified for a refinance loan. If your credit score is average, you could be subjected to a rejection. A lot of banks are very selective about who they approve, so if you don’t have a 720 credit score or higher, then you should reconsider applying for a refinance loan. And if you are approved and decide to pay the loan of quicker, you may have to pay prepayment penalties. You can sometimes have these fees waived.