Three Reasons Not to Refinance Your Mortgage
September 18th, 2009 | by cdesignz |
This is a guest post by Chris Mack. Chris Mack is a professional mortgage loans consultant and is working in a well reputed mortgage company, providing their services for on mortgage loan, mortgage loans and mortgage loan calculator.
There’s a simple measurement for deciding whether or not to refinance your mortgage: time. Get past the allure of lower monthly payments, or cashing out a big chunk of money, and take a good look at the refinance deal to see if it will stand the proverbial test of time. Before you sign any dotted lines, consider these three reasons not to refinance:
1. Lower monthly payments are an illusion
Cash flow is a problem for most people, which is why so many mortgage brokers dangle monthly savings as a carrot for refinancing. Refinancing your loan to a lower rate can yield some significant monthly savings, but it has a catch: long-term, you may end up paying more.
You could, for example, move from a 6 percent fixed-rate product to an adjustable\-rate mortgage (ARM) with a low introductory rate of 5 percent. The monthly savings could be hundreds of dollars, depending on your loan amount.
However, that rate is going to adjust after an introductory period, forcing you to either refinance your loan, or pay a higher rate.
2. Cash now, pay later
A cash-out refinance can be especially detrimental if you refinance your mortgage to a higher rate. Let’s say, for example, that you have a current mortgage at 6 percent. If you close on a cash-out refinance mortgage at 7 percent, not only will you pay interest on the equity you just tapped, but you’re also upping the interest rate on your existing mortgage by 1 percent. Not a smart move over the long haul.
3. Afraid to tell the truth
If you’re afraid to tell your financial advisor about the deal, then take it as a sign that you’re making a bad move. If you find yourself unable to share details of the loan because you know, deep down, that’s it’s not a good long-term move, you may want to rethink your options.
