03 Jun Weekly Real Estate Article #28
3 reasons NOT to refinance your home!
People often ask if they should refinance their home. Here are 3 reasons NOT to refinance your home!
1) Your loan resets! If you have been paying on your home each month the amount you pay towards the principle gets higher and the amount going towards interest gets lower. If your loan is a 30 year term and you have paid on it only a short time then it may not be a big deal given your principle to interest reduction has not really started to be in your favor. If over 5 years, we really should discuss the other 2 points!
2) Your payment may be lower, but for the wrong reasons! Some people have refinanced because their payments were lower, however, they did not take into account that it’s because their loan balance was lower! They had been paying on their loan for 10 years and had drastically reduced the balance. The payment was lower because of this; however, their loan went back to a new 30 year loan so they restarted the process of most of the payment going to interest not principle!
3) The cost of a new loan may take years to pay back! When a new loan is given, fees are charged for the new loan! Loan origination, escrow, title and recording fees are all common! When you take into account the costs VS the savings, this is called recapture. An example: Let’s say you lower your payment $50.00, however it cost $6000.00 to obtain the new loan, then the time it would take to “recapture” and see a true saving is 10 years!
Let’s chat about what’s best for YOU!