The low mortgage rates currently offered by many lenders has enticed a number of homeowners to refinance their homes. While most of these homeowners will have a positive experience with their refinancing, some homeowners may find that refinancing their home has caused more problems than it has solved. Lenders tend to gloss over the bad points associated with refinancing a home loan, but there are some issues that homeowners can face when the refinancing of their home has gone through. Here are some problems to look out for when refinancing a mortgage.
Longer Loan Terms
Some people do not realize that refinancing their home loan in certain ways will increase the amount of time that they are paying on the loan by a significant amount. When a loan is refinanced, the homeowner is essentially getting a new loan on their home. If they have been paying on the loan for a while and then refinance into another 30-year loan term, they have basically extended the term of their loan like they had never been paying on it. While stretching out a lower amount into a longer loan term can lower your payments, it can also cost you more in interest in the long run. It is important to take this into consideration when deciding whether to refinance your loan.
High Refinancing Fees
Many people that decide to refinance their home loan are blindsided by all of the fees that they are required to pay for refinancing. While all of the fees may not be listed on the initial paperwork for the refinanced loan, chances are that you are paying a significant additional amount to the lender in fees for the loan. Some lenders bundle the fees into the total amount of the loan, while some others simply charge a higher interest rate to cover their fees. Before deciding that a refinancing quote is a good one, make sure that you are aware of all of the fees involved in the loan and why they are being charged to you.
When homeowners refinance their home loan, it can be tempting to take out some of the equity in the home for other uses. However, equity that is removed from the home is equity that will need to be replaced eventually and it may cost you more to replace it than you initially thought. If the value of the home falls after you have taken out the equity, you may end up with a home that is underwater, meaning that you owe the lender more than the home is worth. When deciding whether to refinance, make sure you seriously consider the implications of taking equity out of the home before you decide to do it. The true meaning of home ownership is to reduce your mortgage debt until you own it free and clear, not to serially refinance it to use it like a piggy bank and drain the equity.