Refinancing your mortgage isn't always a smart move because of these cons.
Refinancing a mortgage loan frequently makes excellent financial sense, especially when mortgage refinances rates are relatively low.
You need to get a new mortgage loan to pay off your old one to refinance your home. If your new loan has a lower interest rate than your current mortgage, you should be able to reduce your payback costs and make your loan repayment more reasonable.
If you find loan rates that are substantially lower than what you are currently paying, you might be eager to refinance. You should consider the cons before moving further.
The following are the two biggest drawbacks of refinancing:
1. The due date for payments could be adjusted.
Most people don't refinance right away after receiving a home loan. You're more likely to pay down your mortgage for a while before finding that refinancing can cut your interest rate.
If you refinance, you will have to select a new loan term. And for a combination of the following factors, many buyers decide on a 30-year mortgage in default:
- It is what they had before.
- It is common and frequently offered by lenders.
- It typically lowers monthly payments compared to other refinance loans.
Think about the situation where you already have a 30-year loan and are paying it off. If you pull out another one with the same word, the clock will be reset. You might have had only 25 or 26 years left to pay off your present loan. The alternative is that you'll have to start over with 30 more years of payments.
2. You are liable for the closing charges.
It is expensive to refinance. You'll likely need to pay thousands of dollars in closing costs, including a loan origination charge, an appraisal, and title insurance.
If you make monthly payments and interest expense reductions, you can eventually make up for those closing costs. Not all homeowners refinance, though, as many choose to move shortly after or refinance again before realizing a profit.
Do not forget to factor in the time it will take you to recover your closing fees. You may figure this out by multiplying the prices by your monthly savings. For instance, if you spent $6,000 at closing and saved $200 per month, it would take you 30 months, or 2.5 years, to break even. Refinancing is typically not a wise choice if you don't anticipate keeping your new loan long enough to cover your closing costs.
You can get around the first drawback by choosing a shorter payoff period or one that is equal to the length of your present loan. Closing fees, however, cannot be avoided, so make sure they are worthwhile before you take any action.
The Ascent's Best Mortgage Lender for 2023
Mortgage rates are rising quickly. However, they are still fairly low by historical standards. Therefore, if you want to benefit from rates before they considerably rise, you must choose a lender who can help you get the best deal.
With that, Better Mortgage may assist.
You can lock your rate at any time and receive pre-approval without a hard credit check in as little as three minutes. Another advantage? They don't charge origination or lender fees (which can be as high as 2 percent of the loan amount for some lenders).
The advantages of a better mortgage
a) Low costs and a price guarantee
Better Mortgage routinely offers lower rates than many other mortgage lenders, but it promises to keep doing so because of its price guarantee. Better will try to match and outbid a competitor's offer by $100. In that case, you can keep the $100 if the lender is unwilling to.
b) Origination fees null
Many mortgage providers charge fees even for obtaining a loan. Better doesn't charge an origination fee, saving you money on your entire closing costs, which can range from 0.5 percent to 2 percent depending on the lender.
c) Quick loan estimates and pre-approval
Better Mortgage makes it simpler for you to quickly compare lenders by offering you a rate estimate once you've given all the required information in as little as three seconds and a pre-approval in roughly three minutes.
d) Lock in your interest rate whenever you choose.
Borrowers have the option to lock in their interest rate at any time during the loan process. Better will hold your mortgage's interest rate so you can submit your application with confidence that it won't change before you close on your home.
e) Every step of the application procedure is done online.
For a clear reason, the Better is one of our top-rated online mortgage lenders: Almost all of the closing process is done online (except signing the final documents). Simply complete the lender's offered secure online application form and upload any necessary documents.
f) The presence of a dedicated loan officer
You will be allocated a loan officer after completing the pre-approval process, and you will receive their contact details. You can get in touch with them to inquire about your loan application during office hours.
g) Discounts are available.
Borrowers wishing to purchase a property may be eligible for up to $2,000 in lender credits through the Better Real Estate discount program. Your closing expenses will be reduced by a specific amount, referred to as "lender credits," if you are eligible for the reduction. To be eligible, you must choose Better Mortgage Corporation as your mortgage lender and a real estate agent who Better suggested to you. This discount may be utilized in addition to the one above by readers of The Ascent.
h) $150 in savings on closing costs
The Ascent website pre-approval requests are qualified for a $150 closing fee refund. This special perk can help you keep more of your money and reduce the lender's already reasonable fees.
Hope this was interesting and you have learned something new, always stay tuned for my latest article.
