Real estate and money management experts are consonant with the homeowner's idea of refinancing their mortgage. It could be a great choice in some situations, but not in all situations. The option has its adversities that need to be considered fully before opting for it. And if you are planning to sell your home in coming years then refinancing your mortgage is not a viable option for you. But if you are thinking that selling your house is the sole reason that makes refinancing unavailable for you is also not true, many other factors are attached to which makes it worthy to reconsider the refinancing before opting for it.
Mortgage refinancing has an array of downsides that comes in the form of:-
- Fees: - The primary reason for most of the people to opt for refinancing is to get rid of fees, but the cost of refinancing the mortgage can offset many of your planned savings. So it is imperative to consider the refinancing fees carefully, to ensure that your savings will pay back costs within a reasonable time frame. It is always good to know the break-even point, the number of months it will take you to achieve your break even point at the lowest payment and regain what the mortgage lender has charged for refinancing your loan.
- A recourse product: - There are some states where the initial mortgage is a non-recourse loan. That means if, for any reason, you don't pay your installments the lender (Bank) can foreclose your house and keep the proceeds from the sale of your house against your mortgage payment dues, but lenders have no rights on your others assets, if still there remains any deficit of your mortgage amount. The same theory does not apply to the refinanced mortgage loan, as they are like nature of recourse products. So if a default is made for a refinanced mortgage loan, the lender has not only rights to seize the mortgage house, but other assets of you as well to clear the deficit if there remains any.
- Qualification becomes arduous: - Ever since the housing crash the banks have become more cautious when it comes to refinancing the mortgage loans, and it becomes arduous to get qualified for the same. People with average credit scores may opt for refinancing process, but the chances off being rejected are high, or they may end up paying high rates if their credit scores are checked by the banks they have applied.
- Penalty Clause: - Your initial mortgage may contain penalty clause for early payment, and that may include refinancing as one of clauses. So it becomes inevitable for you to include any or all such penalties while calculating the break-even point for refinancing the mortgage loan. And in case you are refinancing your loan from the lender you have to take your initial loan, it is always advisable to ask for waiver of the penalty clause.
- Mitigated mobility, savings with huge paperwork: - You have to stay in the house for which you have opted the refinancing so that you can recoup the fees you paid to avail lower monthly rates on your mortgage loan. Many people have already refinanced their mortgage loan for one or other reason, and if you are among such people, then there is no point of getting it refinanced again as your savings will be too meager to reap you any benefits. And if you still find it lucrative be ready for lengthy and hectic paperwork involved refinancing the mortgage loan.
Give due consideration to all the factors for a smart financial move and avert the chances of making any financial mistake. Your selection should be based on your circumstances, the terms, and condition of lender and comparison of the all the options available to you. Consider not just the benefits, but their drawbacks as well to justify you the reason for refinancing your mortgage loan.