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You have a current loan. You pay it and get a new loan at lower interest rate. Is home refinancing that simple? Unfortunately it is much more complicated then you ever thought.
There are lot many variables. The variables can differ from case to case, turning apparent money saving in to real monetary loss. The home refinancing pros and cons change from a person to person.
If you want to negotiate better new borrowing rate, then how can you get it?
You must have strong credit score. You will have to work hard to achieve strong
credit score.
It is obvious that lower interest rate and lower monthly payment will save you some money in future. But this is offset by the closing costs involved in your current loan. Home refinancing pros is your future saving while cons will be your closing costs. Also take in to account different types of costs associated with this type of transactions.
Loan application fee, Loan origination fees and points, Escrowed funds, prepayment penalty, Title search and insurance cost. These are different costs involved, which you must calculate before deciding all home refinancing pros and cons.
There can be different types of home refinancing options available. Here we consider cash out home refinancing method.
First let us consider an example to understand how this method works.
Let us assume that current value of your home is say, $110, 000. Let us assume that you owe $60,000 on your home. You get a loan of $ 100,000. You will pay
$60,000 current mortgage loan and will keep the difference of $ 40.000 cash for your personal use. The new mortgage payments will be based on $100,000
loan amount.
What sort of home refinancing pros and cons are involved in this type of dealing?
Home refinancing pros will be a big chunk of cash made available. You may need it for education of children, repairs of home, any other contingency need. Second point in your favor will be getting qualified for this type of loan. Generally speaking, the current price of your house is always more than what you owe. This makes it easy for you to get qualified for this type of loan. If you want to use this cash for payment of other debts, there will be significant amount of tax benefit involved. The interest rate s will be lower, giving you further economic advantage.
Home refinancing cons involved will be a huge amount of closing cost for current mortgage loan. If the interest rate difference is very small, then this whole exercise may not be economically beneficial for you. If you borrow more than 80% of the value of your home, you will have to pay mortgage insurance. This private mortgage insurance is costly.
It is better to get info from different lenders and from different web sites, for determining all of home refinancing pros and cons.
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